WIK Report on market structures in the Danish broadband market …... · 2014-12-09 · 4.1.1...

WIK-Consult • Final report

Analysis of market structures in the Danish broadband market

Study for Danish Business Authority

Authors:

Ilsa Godlovitch Stefano Lucidi

Dr. Ulrich Stumpf

Contact Person: Dr. Ulrich Stumpf, [email protected]

Bad Honnef, 28 August 2014

Analysis of market structures in the Danish broadband market I

Contents

Figures III

Tables IV

Executive summary 1

1 Introduction 5

2 Structural conditions and performance of the broadband market 7

2.1 Number and type of players 7

2.2 Market concentration 10

2.3 SMP regulation 12

2.3.1 Scope of wholesale products 12

2.3.2 Pricing of wholesale products 17

2.3.3 Use of wholesale access products 18

2.4 Availability and coverage 21

2.5 Penetration 25

2.6 Retail prices 28

2.7 Summary 29

3 Vertical integration and competition in the broadband market 31

3.1 Advantages and disadvantages of vertical integration 31

3.2 Whether it matters if the infrastructure is closed or open 33

4 Horizontal integration and competition in the broadband market 35

4.1 Impact of horizontal integration on the competitive situation 35

4.1.1 Offers of bundles 35

4.1.2 Use of bundles 36

4.1.3 Concentration 38

4.1.4 Competition problems 39

4.2 Impact of TDC’s ownership of cable assets 43

5 Fiber networks owned by utility companies and competition in the broadband

market 46

5.1 Impact of utility companies with closed fiber networks on competition 46

5.2 Advantages and drawbacks of commercial access to fiber networks 48

6 Options beyond SMP regulation to improve competition in the broadband market 51

6.1 Municipalities to play a greater role in supporting digital infrastructure deployment

(option 1) 51

6.1.1 Description of option 51

Analysis of market structures in the Danish broadband market II

6.1.2 Pros and cons 54

6.1.3 Selected countries experience 55

6.1.4 Relevance of option in Danish context 60

6.2 Fiber terminating segment network sharing and access (option 2) 61



6.2.3 Selected countries experience: France 64


6.3 Access to fiber networks of utilities (option 3) 71





6.4 Functional separation of TDC (option 4) 73





6.5 Divestiture of cable assets of TDC (option 5) 88



6.5.3 Selected countries experience - Portugal 90


6.6 Comparison of options 95

Analysis of market structures in the Danish broadband market III

Figures

Figure 1: Coverage – Percentage of households and businesses passed by a fixed

broadband network enabling 2, 30 and 100Mbps speed, 2010 and 2013 22

Figure 2: Coverage by technology – Percentage of households passed by a fixed

broadband technology, 2012 23

Figure 3: Coverage of cable and FTTH by zip code, mid-2013 24

Figure 4: Overlap of infrastructures (lower bound for overlap of DSL, cable and fiber) 25

Figure 5: Penetration – Share of households & businesses with a fixed broadband

subscription, 2007-2013 26

Figure 6: Penetration by speed – Percentage of households & businesses with a fixed

broadband subscription up to 30 Mbps respectively 100 Mbps, 2008-13 27

Figure 7: Broadband subscriptions by technology, 2003-2013 28

Figure 8: Price of cheapest fixed broadband subscriptions (DKK), 2004-2013 28

Figure 9: Broadband retail prices (Euro PPP), stand-alone broadband offers, 2014 29

Figure 10: Number of subscriptions to bundles (triple play, other bundles) 36

Figure 11: Number of subscriptions to bundles by type of bundle 37

Figure 12: Market shares for triple play fixed line subscriptions 38

Figure 13: Utility companies investing in fiber networks, 2010 47

Figure 14: Portugal Telecom live mapping of duct availability 57

Figure 15: Installation requests answered for PT ducts 59

Figure 16: ARCEP’s FTTH regulation 64

Figure 17: Number of operators present via an FTTH sharing offer in France 67

Figure 18: Number of subscriptions in France for broadband and fast broadband 68

Figure 19: Structure of functional separation of BT 79

Figure 20: Installed base LLU in the UK 81

Figure 21: UK market shares in superfast broadband (>25Mbit/s) March 2014 83

Figure 22: Portugal – broadband lines by technology January 2008 91

Figure 23: Coverage of NGA networks in Portugal by operator, end 2013 92

Analysis of market structures in the Danish broadband market IV

Tables

Table 1: Providers of broadband communications services to end users 8

Table 2: Subscriber numbers and market shares in fixed broadband market, 2008-2013

11

Table 3: Scope of regulated wholesale products of TDC 13

Table 4: Price of wholesale products of TDC, June 2014 (in DKK per line per year) 17

Table 5: Use of wholesale products of TDC 19

Table 6: Availability of broadband infrastructures to end-users 25

Table 7: Degree of vertical integration in the Danish residential broadband market 32

Table 8: Offers of bundles of broadband, voice and TV 36

Table 9: Market shares in TV by operator and platform used 39

Table 10: Viewing time share of major channels, Q1-Q3/2012 41

Table 11: UK LLU prices before and after the copper cost review (€) 80

Table 12: Comparative assessment of options to improve competition in the Danish

broadband market 96

Analysis of market structures in the Danish broadband market 1

Executive summary

Background

In March 2013, the Danish Government launched a plan entitled “Better broadband and

mobile coverage throughout Denmark”. As part of the plan, the Danish Business

Authority (“DBA”), the Ministry of Business and Growth (“MBG”) and the Danish

Competition and Consumer Authority (“DCCA”) initiated an investigation of competition

problems in the fixed broadband market in Denmark. To inform the investigation, DBA

has asked WIK-Consult (“WIK”) to assess the structure of the Danish fixed broadband

market and its implications for the competitive situation. In this respect, DBA has

commissioned WIK to analyze certain topics regarding vertical integration, horizontal

integration and specific issues regarding fiber networks. Furthermore, DBA has asked

WIK to identify and assess options – that go beyond the sector-specific regulation of

competition - for solving the competition problems caused by the structure of the fixed

broadband market. The present report provides the findings of our analysis.

Market structure and competition problems

The report points out a number of structural factors in the Danish broadband market

which are unlikely to be conducive to sustainable competition, namely:

• A very high and stable concentration rate, with the incumbent TDC consistently

leading its competitors by a large market share gap, both in broadband, TV and

bundles;

• TDC operating, for the time being, the most important two infrastructures,

copper/DSL and coax, and other players being limited to a regional footprint or

being heavily dependent on access to TDC’s network infrastructure; Relatively

high entry barriers, despite a comprehensive set of access obligations imposed

on TDC in relation to wholesale unbundled local access and wholesale

broadband access. The economies of scale related to the purchase of wholesale

broadcasting channels create a further barrier.

The unfavorable structural conditions, for the time being, do not seem to have

negatively affected market performance in terms of coverage, penetration and retail

prices. However, it is doubtful whether, in the presence of largely unfavorable structural

conditions, a good market performance can persist in the longer term.

Options for remedying competition problems

The report identifies and assesses a number of options for improving competition. The

discussion of these options has been informed (in four out of five cases) by positive

experiences in other countries. The options considered include the following:


• Municipalities could further facilitate the roll-out of passive infrastructure, notably

ducts, and provide access to ducts of public utilities under their ownership

(option 1);

• DBA (or another competent authority, as appropriate in Denmark) could impose

symmetrical regulation of fiber terminating segments involving access to co-

investment in, and rental of, such segments (option 2);

• Utility companies that have invested in, and operate, fiber networks could offer

access on commercial terms (option 3);

• TDC could functionally separate its local access network and provide wholesale

services under “Equivalence of Input” principles (option 4); and

• TDC could divest its cable assets (option 5).

Comparative assessment

The assessment shows that each option has its specific advantages and

disadvantages. The following table provides a comparative view of

• Whether implementation of the option can be mandated or depends on a

voluntary (i.e. commercial) decision of the operator(s);

• Whether, and to what extent, it likely increases infrastructure-based competition

(potentially allowing removal of SMP regulation);

• Whether, and to what extent, it likely increases access-based competition;

• Whether there are one-off implementation costs; and

• Whether there are recurring implementation costs.


Table: Comparative assessment of options to improve competition in the

Danish broadband market

No. Option Mandated

or voluntary?

Competition benefits Implementation costs

Increase of infrastructure-

based competition?

Increase of access- based

competition?

One-off implemen-

tation costs?

Recurring implemen-

tation costs?

1 Greater role for municipalities in fostering digital infrastructure readiness

Mandated √ - ↑ ↑

2 Symmetric FTTH terminating segment network sharing

Mandated √ - ↑↑ ↑↑

3 Access to fiber networks of utilities

Voluntary - √ (1) ↑ ↑

4 Functional separation of TDC

Voluntary - √√ ↑↑ ↑↑

5 Divestiture of cable assets of TDC

Voluntary √√√ √ (2) ↑↑↑ -

Notation:

Competition benefits: √: Low benefits, √√: Medium benefits; √√√: High benefits.

Implementation costs: ↑: Low costs; ↑↑: Medium costs; ↑↑↑; High costs. (1)

If demand for access to fiber utilities came predominantly from TDC, a positive effect on access-based competition would not materialize.

(2) If the increase of infrastructure-based competition led to the deregulation of wholesale access markets, access-based competition would decrease. In these circumstances, access-based competition would, however, become less important for overall effectiveness of competition and market performance.

Source: WIK

The results of the table can be summarised as follows:

Mandated versus voluntary:

Only two options can be mandated and therefore be regarded as genuine policy

options: The first option is giving a greater role to municipalities in fostering digital

infrastructure readiness. The second option is imposing symmetric FTTH terminating

segment network sharing.

The other options considered lack a legal foundation and therefore cannot be imposed

on a mandatory basis. They become relevant if they make commercial sense to the

relevant operators, respectively company shareholders. This applies in relation to


access to fiber networks, but also to functional separation (unless imposed through

SMP regulation, which was not considered) and divestiture of cable assets of TDC.

Promotion of infrastructure-based competition:

Divestiture of TDC’s cable assets clearly fares best, when it comes to promoting

infrastructure-based competition and dealing with the origin of much of the current

competition problems. FTTH terminating segment network sharing potentially could also

have an impact on infrastructure-based competition, it seems however that demand for

it may be limited to TDC. Giving municipalities a greater role has a relevant, though

limited, impact on infrastructure-based competition.

The other options – access to fiber networks of utilities and functional separation of

TDC – are unlikely to contribute to a relevant extent to infrastructure-based competition.

Promotion of access-based competition:

Functional separation fares best in terms of promoting access-based competition.

Access to fiber networks of utilities could potentially also provide a stimulus, but it

remains to be seen whether operators other than TDC would express an interest in it.

Arrangements between fiber utilities and TDC could be prohibited by the Danish

Competition Authority if they give rise to competition problems.

Divestiture of cable assets of TDC, however, may also have a positive impact on

access-based competition as it may improve TDC’s incentives to upgrade its copper

network with vectoring or roll out FTTH in cable areas and thus improve access

products for competitors. In turn, if the creation of an independent cable operator lead to

a significant enough increase in infrastructure-based competition, access-based

competition would become less important for overall effectiveness of competition and

market performance. This would likely lead to deregulation of wholesale access

markets.

The other options – greater role of municipalities and FTTH terminating segment

network sharing – do not to promote access-based competition. Their primary focus is

on strengthening infrastructure-based competition.

One-off implementation costs:

All options create one-off implementation costs. Such costs are highest for divestiture of

TDC’s cable assets given the necessary reorganisation of TDC and the sales process

or IPO (Initial Public Offering). The cost of implementing functional separation and

FTTH terminating segment network sharing is also significant. Costs are lowest in case

of a greater role of municipalities and access to utilities’ fiber networks.

Recurring implementation costs:

Divestiture of cable assets of TDC, once completed, has no recurring costs. All other

options create to a varying degree recurring implementation costs.


1 Introduction

In March 2013, the Danish Government launched a plan entitled “Better broadband and

mobile coverage throughout Denmark”.1 As part of the plan, the Danish Business

Authority (“DBA”), the Ministry of Business and Growth (“MBG”) and the Danish

Competition and Consumer Authority (“DCCA”) initiated an investigation of competition

problems in the fixed broadband market in Denmark. The investigation goes beyond the

market reviews conducted by the Danish Business Authority, which identify specific

competition problems related to Significant Market Power (“SMP”) in wholesale markets

and which lead to the imposition of a comprehensive set of access remedies.2 The

purpose of the investigation of the three public bodies is to put competition problems in

the broadband market in a wider context and identify any actions beyond SMP

regulation that may increase competition and thus contribute to a well-functioning

market.

To inform the investigations, DBA has asked WIK-Consult (“WIK”) to assess the

structure of the Danish fixed broadband market and its implications for the competitive

situation. In this respect, DBA has asked WIK to analyse certain topics regarding

vertical integration, horizontal integration and specific issues regarding fiber networks.

Furthermore, DBA has asked WIK to identify options – that go beyond the sector-

specific regulation of competition – for solving the competition problems caused by the

structure of the fixed broadband market.

Based on positive experience in other countries, we have identified the following options

for further assessment:

• Municipalities could further facilitate the roll-out of passive infrastructure, notably

ducts, and provide access to ducts of public utilities under their ownership

(option 1);




• Utility companies that have invested in and operate fiber networks could offer

access on commercial terms (option 3)3;

1 Bedre bredbånd og mobildækning i hele Danmark, Marts 2013 (http://www.evm.dk/~/media/oem/pdf/2013/2013-publikationer/13-03-13-bedre-bredbaand-og-mobildaekning-til-hele-dk/13-03-2013-bedre-bredbaand.ashx)

2 DBA has addressed competition problems under its regulatory powers and imposed on TDC obligations related to its position of SMP in the markets for wholesale physical network infrastructure access (market 4 of the 2007 Relevant Markets Recommendation), wholesale broadband access (market 5), and terminating segments of wholesale leased lines (market 6).

3 Note that this option has been considered because of prior experience in Denmark. There is little experience outside Denmark on access to alternative operators’ fiber networks, for which commercial access is usually not available.



services on an “Equivalence of Input” basis4 (option 4); and


The assessment uses standard competition analysis as well as a qualitative analysis of

the benefits and costs of the options considered. We have used data provided by DBA

as well as information drawn from various published studies. In addition, in order to

further inform our analysis, we have carried out structured interviews with

representatives of key stakeholders, including TDC, Telenor, TeliaSonera, Global

Connect, Waoo!, SE/Stofa, Concepy, Boxer TV and the Danish Chamber of Commerce.

Some of the interviewees provided additional written statements.

The present report provides the findings of our analysis. The report first assesses the

structure of the Danish fixed broadband market and its implications for competition

(section 2). It then addresses, in line with the terms of reference, the following issues:

the impact of vertical integration on competition (section 3), the effect of horizontal

integration (section 4) and the role of fiber networks owned by utility companies (section

5). The report concludes with an assessment of the pros and cons of various options,

could potentially improve competition in the Danish broadband market (section 6).

4 “Equivalence of Inputs” means the provision of services and information to internal and third-party access seekers on the same terms and conditions, including price and quality of service levels, within the same time scales using the same systems and processes, and with the same degree of reliability and performance. See Article 6(g) Commission Recommendation of 11.9.2013 on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment.


2 Structural conditions and performance of the broadband market

Section 2 provides relevant background and gives an overview of structural conditions

of the Danish broadband market in terms of

• Number and type of players;

• Market concentration; and

• Entry barriers – in the light of access obligations imposed as a result of SMP

regulation.

This is followed by an assessment of the performance of the broadband market in terms

of

• Availability of fixed broadband – including choice between multiple

infrastructures;

• Fixed broadband penetration; and

• Retail prices of fixed broadband

The section concludes with an assessment of the implications for competition.

2.1 Number and type of players

Seven companies currently provide broadband services to end users and businesses:5

• TDC,

• Telia Denmark,

• Telenor Denmark,

• Waoo!,

• Nianet,

• Syd Energi (“SE”), and

• Global Connect.

Two operators are known to consider market entry:

• Concepy, and

• Boxer TV.

The providers of retail broadband services, their scope of products, and the underlying

platforms and business models are summarised in Table 1 and described thereafter.

5 We neglect those with de minimis sales.


Table 1: Providers of broadband communications services to end users

Player Major retail products Platform(s) Business model

TDC

Broadband, telephony, TV, OTT (marketed through “TDC”, “Fullrate” and “YouSee” and other brands)

Business communications services

Copper/xDSL, coax, fiber

End-to-end provision of services

Telenor Broadband, telephony, OTT

Business communications services Copper/xDSL

Provision of services based on ULL, VULA and bitstream access

Telia Broadband, telephony, TV

(1), OTT

Business communications services Copper/xDSL

Provision of services based on ULL, VULA and bitstream access

Concepy (2)

Potentially broadband, telephony, TV and/or OTT

Copper/xDSL Provision of services based on ULL, VULA and bitstream access

Waoo! Broadband, telephony, TV, OTT Fiber End-to-end provision of services

Nianet Business communications services Fiber End-to-end provision of services

SE/Stofa

Broadband, telephony, TV, OTT (marketed through SE and Stofa brands)

Business communications services

Fiber, coax

End-to-end provision of services

GlobalConnect Business communications services Fiber End-to-end provision of services

Boxer TV (3)

TV, potentially broadband and voice DTT

Pay TV provider

Provision of broadband and voice based on resale

(1) Telia provides TV only to subscribers served on the basis of ULL.

(2) Concepy is in a trial stage and a potential new entrant into fixed broadband and voice.

(3) Boxer TV provides digital terrestrial television, and is a potential new entrant into fixed broadband and voice.

Source: WIK

TDC

TDC is the incumbent operator and the leading provider of fixed and mobile

communications services to end users. In the fixed area, TDC offers a comprehensive

portfolio of products including broadband, telephony, TV (stand-alone or bundled) and

business communications services.

TDC provides fixed services over three infrastructures:

• A nationwide copper network, upgraded to xDSL and covering 98% of Danish

homes and businesses with basic broadband (i.e. 2 Mbps download);

• A coax network, upgraded to DOCSIS 3, which covers 50% of homes and

businesses;

• A fiber network, which covers 2% of homes and businesses. It is made up of two

networks - a build-to-order (BTO) network and a FTTH network. The BTO


network is the oldest of TDC’s fiber networks and serves primarily business

customers. The FTTH network is primarily the network that TDC acquired from

DONG Energy (“DONG”) in 2009. The DONG network was a point-to-point

network, but TDC is moving to a GPON topology. In 2013, TDC also acquired

the fiber operator ComX which serves around 34,000 subscriber households in

Copenhagen and North Zealand.6

Telenor Denmark

Telenor Denmark is a subsidiary of Norwegian telecommunications company Telenor

(the Norwegian incumbent) and is active in fixed and mobile communications. Its fixed

portfolio includes broadband, voice and OTT services primarily provided to residential

users, but not TV. Telenor uses regulated wholesale products of TDC, notably

unbundled local loops (“ULL”); VULA and bitstream access. Telenor Denmark itself is

the result of various mergers (e.g. with Tiscali in 2005, Cybercity in 2005 and Tele2 in

2007).

Telia Denmark

Telia Denmark is owned by the international telecommunications group TeliaSonera

(the Swedish incumbent). Similarly to Telenor, it is active in both fixed and mobile

communications. It provides fixed broadband, voice, OTT and (to a limited extent) TV

services predominantly to residential users. As in the case of Telenor, its services are

based on ULL, VULA and bitstream access.

Concepy

Concepy is a potential new entrant planning to offer broadband and voice and

potentially TV and/or OTT services to end users via ULL, VULA and bitstream access.

Concepy has not entered the market yet and is still in a testing phase.

Waoo!

Waoo! was established in 2010 as a product and marketing house for the fiber access

networks of 15 of Denmark’s largest energy companies. Utilities that have deployed

fiber networks are owned by cooperatives, not municipalities. The largest of the

founding companies, Syd Energi (SE), withdrew from the Waoo! platform in April 2014.

Other fiber utilities have merged.7 Waoo! sells broadband, voice, TV and OTT services

to residential users. Fiber utilities deploy fiber mainly in their respective public utility

area. The fiber networks selling retail broadband through Waoo! are located in Jutland,

Funen, North and South Zealand, Lolland and Falster.

6 TDC’s fiber acquisitions were not subject to merger control proceedings as the acquired companies had a revenue of less than 100 mio. DKK.

7 The most significant, NRGi (network in Eastern Jutland) and SEAS-NVE (network in north-west Zealand), have recently merged their networks.


Nianet

Nianet was established in 2003 by the same Danish power utility companies, who also

provide broadband services to residential users under the Waoo! brand. In contrast to

Waoo!, Nianet provides business communications services to companies and

institutions in the private and public sector.8

SE

Syd Energi (“SE”) is the telecoms arm of an electricity company. SE provides

broadband Internet access, voice, TV and OTT services to residential users over a fiber

and a cable network. The cable network was acquired in 2013, when SE purchased

Stofa from Ratos, a private equity fund that acquired Stofa from Telia in 2010. Stofa’s

cable network is concentrated in the major cities, especially in Jutland and Funen, while

SE’s fiber network is located in the southern part of Jutland.

GlobalConnect

GlobalConnect provides business communications services, notably solutions for data

networking and housing. It is also a provider of wholesale services to other network

operators. GlobalConnect's fiber network covers all of Denmark and parts of Sweden

and Germany.

BoxerTV

BoxerTV (“Boxer”) is a subsidiary of BoxerTV Access, a Swedish company which is

owned by Teracom (which in turn is owned by the Swedish state). Boxer provides pay

television channels since 2009, and in the future is planning to bundle its TV offer with

broadband and voice services. Boxer provides TV over the digital terrestrial television

network of its parent company, Teracom. Since Teracom operates only DTT

infrastructure in Denmark, Boxer will need to resell the broadband and voice services of

a telecoms operator.

2.2 Market concentration

The retail market for fixed broadband is highly concentrated. TDC, the market leader,

enjoys a large, persistent market share of 60% in terms of subscriptions as is shown in

Table 2. TDC is ahead of its next competitors by a substantial market share gap of

48%, respectively 51%.

Second largest operator is SE with a market share of 12% in 2013. SE’s market share

significantly increased after the acquisition of Stofa. Third largest competitor is Waoo!.

8 http://www.nianet.dk/om-nianet/overview-in-english


Thus the competition exerted on TDC mainly comes from infrastructure based

operators.

The market shares of the two access-based competitors, Telenor and Telia, have more

than halved over the past six years. Telenor’s share has decreased from 15% to 7%,

whereas Telia’s share has fallen from 10% to less than 5%. It must however be noted

that Telia’s loss of market share was predominantly a result of selling Stofa, which

operates a coax network, to the private equity fund Ratos. Together Telenor and Telia

account for almost 12% of the broadband subscriptions.

Table 2: Subscriber numbers and market shares in fixed broadband market,

2008-2013

H1/

2008

H2/

2008

H1/

2009

H2/

2009

H1/

2010

H2/

2010

H1/

2011

H2/

2011

H1/

2012

H2/

2012

H1/

2013

H2/

2013

TDC 1,174,894 1,160,674 1,303,234 1,315,012 1,317,836 1,323,509 1,300,941 1,307,532 1,334,234 1,351,481 1,358,723 1,391,156

SE (1) (1)

(1)

(1)

(1) (1)

(1) (1)

(1)

(1) 262,404 273,508

Stofa (2) (2)

(2) (2) (2) 148,611 151,238 176,422 179,846 186,747

(3) (3)

Tele-nor

297,609 290,385 282,699 280,693 271,918 260,604 252,349 217,939 196,812 183,850 175,407 166,532

Telia 193,387 191,136 196,189 203,014 210,172 75,976 85,537 (4) (4) (4)

(4)

(4)

Others 343,636 384,017 269,128 281,622 314,085 341,520 356,456 483,578 469,770 496,107 465,217 469,110

Total 2,009,526 2,026,185 2,051,250 2,080,341 2,114,011 2,150,220 2,146,521 2,185,471 2,180,662 2,218,185 2,261,751 2,300,306

H1/

2008

H2/

2008

H1/

2009

H2/

2009

H1/

2010

H2/

2010

H1/

2011

H2/

2011

H1/

2012

H2/

2012

H1/

2013

H2/

2013

TDC 58% 57% 64% 63% 62% 62% 61% 60% 61% 61% 60% 60%

SE (1) (1)

(1)

(1)

(1) (1)

(1) (1)

(1)

(1) 12% 12%

Stofa (2) (2)

(2) (2) (2) 7% 7% 8% 8% 8%

(3) (3)

Tele-nor

15% 14% 14% 13% 13% 12% 12% 10% 9% 8% 8% 7%

Telia 10% 9% 10% 10% 10% 4% 4% (4) (4) (4)

(4)

(4)

Others 17% 19% 13% 14% 15% 16% 17% 22% 22% 22% 21% 20%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Notes:

(1) SE’s subscribers, respectively market share, are included in “others”. SE’s market share was less than

3% until H1/2011 and less than 5% between H2/2011 and H2/2012.

(2) Stofa was part of Telia until H1/2010 and its subscriber numbers, respectively market share, during that

period are included in Telia’s figures.

(3) Stofa was acquired by SE and, since H1/2013, its subscriber numbers, respectively market share, is

included in SE’s figures.

(4) Telia’s subscriber numbers, respectively market share, are included in “others”. Telia’s market share

was less than 5% during the relevant period.

Source: DBA

Compared to most other EU countries, the Danish broadband market is much more

concentrated. While, in January 2014, TDC’s market share was 59%, the market share


of incumbents was on average 42% in the EU.9 Only Cyprus and Luxemburg had

incumbent market shares that were higher than in Denmark.

2.3 SMP regulation

Broadband networks give rise to substantial economies of scale, scope and density as

well as sunk costs. The combination of these factors limits the replicability of networks

and products by competitors. In the absence of ex ante regulation, the retail broadband

market would be characterized by substantial barriers to entry. DBA - through the

network access obligations imposed on TDC – has reduced these barriers. SMP

regulation alone, however, has not been able to eliminate barriers to entry and create a

more competitive market structure. This section describes the scope and pricing of

regulated access products and the problems related to access.

2.3.1 Scope of wholesale products

DBA has found TDC to have Signifcant Market Power (“SMP”) in two wholesale

markets related to residential broadband products:

• Wholesale physical network infrastructure access (Market 4 of the Relevant

Markets Recommendation10); and

• Wholesale broadband access (Market 5).

The competition problems related to SMP at wholesale level have led DBA to impose

on TDC a comprehensive set of access products, encompassing unbundled local

access, virtual unbundled local access (“VULA”), access to civil engineering and

backhaul (all imposed in the Market 4 decision), and wholesale broadband access

(Market 5 decision). Major access products are listed in Table 3 and described in the

sections thereafter.

TDC is subject to a “stand still” obligation for its NGA wholesale products, i.e. TDC has

to withhold new NGA wholesale products from internal or external provision for a

specified period. The purpose of the “stand still” obligation is to ensure that alternative

operators have equal access to information about new NGA wholesale products in

order to develop their own end-user products based on the new wholesale product.

9 http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?action=display&doc_id=5935

10 See Commission Recommendation of 17 December 2007 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services.


Table 3: Scope of regulated wholesale products of TDC

Wholesale category Wholesale product

Platform

Copper Fiber Cable

Duct access Duct access in backhaul sections √ √

Unbundled local access

SLU √ (1)

LLU √ (2)

√ (3)

VULA

VULA uncontended √ (4)

VULA contended, layer 2 √

VULA contended, layer 3 √

Bitstream access

Bitstream access, layer 2 √ √

Bistream access, layer 3 √ √ √

Bitstream access, national √ √ √

Notes:

(1) Encompasses access to fully unbundled copper subloop and shared access.

(2) Encompasses access to fully unbundled copper loop and shared access.

(3) In case of P2P architecture.

(4) DSLAM at street cabinet or central office.

Source: DBA

2.3.1.1 Access to backhaul

TDC is obliged to grant access to the backhaul section of its copper and fiber access

network from advanced connection points to a higher lying point in the network in two

forms:

• Access to ducts in backhaul sections;

• Access to rental of dark fiber in backhaul sections.

TDC is not subject to an obligation to provide duct access in the drop sections of its

copper and fiber access network. A substantial share of copper cables is directly buried

into the ground.

Duct access to TDC’s cable network is not addressed by any obligations as cable is not

included in Market 4.


2.3.1.2 Copper access


TDC must provide access to unbundled copper loops, including dual pair bonding.11

Unbundling of the copper loop comprises unbundling of the higher frequency part of the

loop (shared access) as well as unbundling of the full loop. Unbundled access, in

principle, also covers subloops though there is very little use of it. From 1 January 2015,

the subloop unbundling obligation will be abandoned for areas, where TDC applies

vectoring at street cabinets and where access would prevent the realisation of the

benefits of vectoring.

VULA

TDC is obliged to offer VULA in local exchange areas, where a street cabinet has been

deployed/established. VULA must be provided in two versions:

• A contended version where capacity is shared: Contended VULA is different

from bitstream as it gives alternative operators the possibility to change

transmission speeds, contention and quality and to supervise and carry out

certain maintenance functions.12

• An uncontended version with dedicated connection and guaranteed speed: The

uncontended version of VULA differs from the corresponding contended version

by a higher level of transparency (e.g. the possibility for the alternative operators

to use different transmission protocols) in addition to control of the degree of

contention.13

VULA must be made available at different locations and layers (layer 2 and layer 3) and

with all the functionalities used by alternative operators for offering innovative services,

such as video on demand (VOD). The uncontended version must additionally be made

available on the backside of DSLAMs at MDFs and street cabinets.

For uncontended VULA, TDC is additionally obliged to offer backhaul between street

cabinet and local exchange.

TDC is currently implementing vectoring technology in many of its street cabinets.

Vectoring is a form of signal processing, which reduces the crosstalk between copper

pairs and neighboring lines, thus allowing significantly higher and more predictable

speeds. TDC expects that a total of 650,000 lines may ultimately benefit from the use of

vectoring since they have an attenuation of less than 10 dB. Approximately 400,000 of

these lines have an attenuation of less than 5 dB and will be able to provide speeds up

11 Dual pair bonding increases the speed of products offered compared to traditional broadband products which use a single copper pair.

12 Contended VULA is available since June 2013.

13 Uncontended VULA is available since December 2013.


to 100 Mbps download and 30 Mbps upload. TDC is obliged to notify the intended use

of vectoring six months prior to the upgrade.14

TDC must offer VULA to alternative operators with the higher and more predictable

speeds made possible by the use of VDSL2 vectoring at the street cabinet.15 Where

TDC deploys vectoring technology at the street cabinet, the subloop unbundling

obligation will be abandoned if such access prevents the realization of the benefits of

vectoring. In order to be effective, vectoring requires that all lines are centrally managed

from the same DSLAM. This is not yet possible with the currently available technology

for multiple operators. It would therefore be technically inefficient to operate vectoring

together with sub-loop unbundling.

Following a reasonable request by an alternative operator, TDC is obliged to deploy

vectoring and provide VULA even if it would not decide to deploy vectoring itself. The

purpose of this requirement is to act against any incentives of TDC to limit the use of

vectoring to street cabinets outside the footprint of its cable coax network in order to

foreclose competition on NGA.

Due to the fact that, certain customer premise equipment (CPE) may interfere with the

use of vectoring, TDC must prepare a white list of vectoring compatible CPEs.

Alternative operators are only allowed to use CPEs from this white list.

In case of forced migrations of alternative operators from SLU to VULA, TDC is obliged

to pay compensation for stranded investments in form of a one-off payment per line. No

such compensation has to be paid to alternative operators requesting vectoring.

Bitstream access

TDC is obliged to offer bitstream access on its copper network at the first Layer 2

switch (about 1,000 handover sites), at the first Layer 3 switch and with national

handover. The obligation covers connections with dual pair bonding. Furthermore, it

includes multicasting functionality which would allow alternative operators to provide

IPTV.

14 18 months prior to upgrade in cases where alternative operators are already present at the street cabinet and do not agree to the upgrade.

15 In Denmark, a draft decision regarding the use of vectoring at the full loop (at central offices) has been out for consultation. Based on the incoming responses, it has been decided to carry out further analysis to be able to assess the competition issues with regard to this specific situation before a decision may be made.


2.3.1.3 Fiber access


TDC’s unbundling obligation extends to its fiber network. TDC is obliged to offer access

to unbundled fiber regardless of the topology used (whether point-to-point or point-to-

multipoint). DBA additionally imposed on TDC an obligation to construct, at the request

of an alternative operator, a drop cable connecting the end customer with the near-by

fiber network (up to 30 m of length). This is because TDC extends the fiber connection

to the end customer only at the time of signing a contract with the end-user. The drop

cable obligation means that TDC must install such connections as a wholesale service,

when alternative operators requests so.

VULA

DBA has not imposed fiber VULA. Alternative operators have stated that they do not

find fiber VULA interesting for the time being.

Bitstream access

TDC is mandated to offer bitstream access on its fiber network at layer 2, layer 3 and at

national level. The obligation also requires TDC to provide alternative operators with the

drop cables if end users are not yet connected to TDC’s fiber network.

2.3.1.4 Cable access

Bitstream access

TDC is obliged to offer bitstream access on its coax network at layer 3 and at national

level. In contrast to copper/fiber bitstream, TDC is not obliged to provide on its coax

network bitstream access with multicasting functionality.

Resale TV

In a draft Market 5 decision consulted in June 2014, DBA proposed to impose on TDC

an obligation to make its TV channels available for resale. The resale offer is tied to

using cable bitstream access for proving broadband services to the respective end-

user. Thus the YouSee’s basic TV package and premium channels cannot be

purchased and resold on a stand-alone basis.

Furthermore, TDC must ensure that access seekers get the same terms and prices for

content as TDC have themselves. This only applies to the relevant rights for analogue

and clear (unencrypted) digital pay-TV channels placed in their basic TV package. For

TV channels that are not part of the basic TV package (and therefore not mandatory for

the broadband connection) access seekers must negotiate their own terms.


2.3.2 Pricing of wholesale products

Cost orientation obligation

TDC’s wholesale prices of duct access and dark fiber, unbundled local access and

bitstream access are cost oriented and based on long-run average incremental costs

(“LRAIC”). As of January 1, 2015, VULA prices will also be fully based on the (revised)

LRAIC model.

The current wholesale prices are shown in Table 4. The following is worth noting:

• The wholesale charge for bitstream access via cable is 7.4% above the charge

of copper bitstream. The fiber bitstream prices are more than twice the price of

copper bitstream.16

• Uncontended and contended layer 2 VULA are cheaper than LLU.17

Table 4: Price of wholesale products of TDC, June 2014 (in DKK per line per year)

Wholesale category

Wholesale product Platform

Copper Fiber Cable


SLU 322 (1)

- 643 (2)

LLU 369 (3)

- 737 (4)

na

VULA

VULA uncontended 441 (5)

- 474 (6)

VULA contended, layer 2 668

VULA contended, layer 3 822

Bitstream access

Bitstream access, layer 2 777 2,239 (7) - 2,934

(8)

Bistream access, layer 3 931 2,317 (7)

– 3,012 (8)

1,000

Bitstream access, national na na

Notes:

(1) Shared access to unbundled copper subloop

(2) Full access to unbundled copper subloop.

(3) Shared access to unbundled copper loop

(4) Full access to unbundled copper loop.

(5) DSLAM at street cabinet. The alternative operator pays an additional fixed fee of DKK 108 for each

DSLAM where it buys uncontended VULA.

(6) DSLAM at central office. The alternative operator pays an additional fixed fee of DKK 108 for each

DSLAM where it buys uncontended VULA.

(7) Inside DONG area.

(8) Outside DONG area.

Source: DBA

16 The regulated bitstream price is, however, expected to drop significantly as of 1 January 2015.

17 According to DBA, the shift to a revised cost model approach for VULA at the beginning of 2015 will not lead to a price increase.


“No margin squeeze” obligation

TDC is subject to an obligation not to initiate margin squeezes between the retail prices

and the wholesale prices for unbundled local access or bitstream access. TDC’s prices

for single play (stand-alone broadband) and double play (broadband bundled with

telephony) must fulfill two conditions:

• Individual test: Alternative operators must be able to replicate TDC’s prices and

campaigns on individual products. This so-called “individual test” is forward

looking and performed whenever TDC launches new products, prices and

campaigns in the market. TDC’s revenue from individual retail products must

equal or exceed the wholesale charge plus the incremental costs of a

reasonably efficient operator (“REO”). In case of a negative margin, TDC must

lower its wholesale prices and/or increase its retail prices to avoid the squeeze.

• Total test: Alternative operators must be able to achieve a positive profit on the

entire portfolio of broadband products (consisting of single play and double play

products). Once a year, the actual TDC revenue is compared with the wholesale

cost plus the incremental cost of a reasonably efficient operator using the

volumes actually sold by TDC. In case of a negative margin, TDC must lower its

wholesale prices to eliminate the squeeze. The adjusted wholesale prices apply

until the total test is re-performed the following year.

The obligation not to initiate a price squeeze does not prevent TDC to meet price

competition with regard to relevant, comparable broadband products in the retail

market. If competitors undercut TDC in a geographically limited area, TDC is only

allowed to reduce its prices in that same geographical area. By the same token, if an

alternative operator lowers a retail price for a campaign period, TDC is only allowed to

meet the price competition during this campaign period.

2.3.3 Use of wholesale access products

In 2013, TDC provided 418,547 wholesale lines to alternative operators. As is shown in

Table 5, 58.2% were unbundled local access lines and 41.8% were bitstream access

lines. Compared to the previous year, the share of local loop unbundling has

significantly decreased, while the share of bitstream access lines has increased.

A reason is TDC’s upgrading of the copper network with FTTC/VDSL. Alternative

operators do not have the scale to justify investment in FTTC and to migrate from the

full copper loop to the subloop. While they can continue to provide ADSL or VDSL from

the MDF, doing so entails a severe speed disadvantage compared to TDC. Alternative

operators therefore have an incentive to move from LLU to VDSL bitstream or VULA.


Table 5: Use of wholesale products of TDC

Wholesale product

2012 2013

Number of lines

Number of lines


LLU 248,046 227,104

LLU shared 21,733 16,409

SLU and SLU shared 316 239

Unbundled fiber access na na

VULA VULA at DSLAM, layer 2, layer 3 0 0

Bitstream access Bitstream access layer 2 - copper 0 0

Bistream access layer 3 - copper 145,627 163,641

Bitstream access national - copper 0 0

Bitstream access layer 2 – fiber in DONG area 0 0

Bitstream access layer 2 – fiber in rest of country 0 0

Bitstream access layer 3 – fiber in DONG area 11,172 11,154

Bitstream access layer 3 – fiber in rest of country 0 0

Bitstream access national - fiber 0 0

Bitstream acess layer 3 - coax 0 0

Total LLU/SLU/VULA 270,095 243,752

Total bitstream 156,799 174,795

Total wholesale lines 426,894 418,547

Wholesale product

2012 2013

Share of lines

Share of ines


LLU 58.1% 54.3%

LLU shared 5.1% 3.9%

SLU and SLU shared 0.1% 0.1%

Unbundled fiber access na na

VULA VULA at DSLAM, layer 2, layer 3 0.0% 0.0%

Bitstream access Bitstream access layer 2 - copper 0,0% 0.0%

Bistream access layer 3 – copper 34.1% 39.1%

Bitstream access national - copper 0% 0%

Bitstream access layer 2 – fiber in DONG area 0.0% 0.0%

Bitstream access layer 2 – fiber in rest of country 0.0% 0.0%

Bitstream access layer 3 – fiber in DONG area 2.6% 2.7%

Bitstream access layer 3 – fiber in rest of country 0.0% 0.0%

Bitstream access national - fiber 0% 0%

Bitstream access layer 3 - coax 0.0% 0.0%

Total LLU/SLU/VULA 63.3% 58.2%

Total bitstream 36.7% 41.8%

Total wholesale lines 100.0% 100.0%

Source: TDC


2.3.3.1 Unbundled local access

In 2013, TDC provided 243,752 unbundled copper lines to alternative operators. The

large majority of unbundled lines were fully unbundled copper loops as is shown in

Table 5. Shared unbundled local loops play a decreasing role, and subloop unbundling

has remained de minimis.

Use of fiber access has been virtually non-existent. The major reasons are the relatively

high charges of fiber access (see Table 4 above) in combination with a limited

willingness of residential customers to pay a premium for broadband speeds of 100

Mbps and more. It should also be noted that the footprint of TDC’s fiber network is

geographically very limited.

2.3.3.2 VULA

TDC introduced contended VULA in June 2013 and uncontended VULA in December

2013. After initial technical problems, VULA has witnessed an uptake. As of 1 July

2014, alternative operators had already approximately 45,000 VULA connections, so far

generally of the contended version. The introduction of vectoring at the street cabinet

will further promote migration to VULA.18

A regulated fiber VULA product has not been imposed given the lack of interest from

the alternative operators.

2.3.3.3 Bitstream access

In 2013, TDC provided 174,795 bitstream lines. The large majority of bitstream access

is provided over copper with ADSL/VDSL technology.

Fiber bitstream accounts only for small numbers. According to alternative operators, a

major reason are the relatively high wholesale prices for TDC’s fiber bitstream product,

including for multicasting, which do not allow offering attractive prices to end users (see

Table 4 above). Moreover, mixing or switching between wholesale platforms creates

complexity both at end-user and wholesale level. Alternative operators prefer to focus

on a single platform, namely DSL.

There is no use of cable bitstream, though a regulated offer exists. Bitstream over

TDC’s coax network remains unattractive to alternative operators for the following

reasons:

• Alternative operators can use the cable bitstream product only for end users that

have a TV subscription. Alternative operators cannot offer the TV service

themselves. This may change in the future, as DBA has proposed to impose a

18 The amendment covering vectoring at the street cabinet enters into force on 1 January 2015.


resale TV obligation on TDC, which was consulted in June 2014. It must be

noted that TDC must ensure that access seekers get the same terms and prices

for content as TDC. However, this only applies to the relevant rights for

analogue and clear (unencrypted) digital pay-TV channels placed in their basic

TV package. For TV channels that are not part of the basic TV package, a

resale offer is subject to alternative operators striking an agreement with the

broadcasters who own the content rights.

• Alternative operators have also claimed that the bitstream charge does not allow

competitive retail offers. The regulated bitstream price is, however, expected to

drop significantly as of January 1, 2015.

• Mixing or changing wholesale platforms creates complexity both at end-user and

wholesale level.

SMP regulation, while providing for mandated access on all three platforms operated by

TDC, has not eliminated barriers to entry to the Danish retail broadband market.

2.4 Availability and coverage

Despite the high level of market concentration and the persistent entry barriers,

Denmark fares well in terms of broadband coverage, both in absolute terms and

compared to other European countries.

Speeds

Denmark is well covered with standard broadband as Figure 1 shows. A connection

with at least 2Mbps download is available to 99.9% of homes and businesses, and 2

Mbps upload speed is available to 98%.19

Moreover, Denmark is increasingly covered with NGA infrastructure. Speeds of 30

Mbps are now available to more than 80% of homes and businesses for download,

respectively almost 60% of homes and businesses for upload. Thus, Denmark has

clearly advanced towards the respective EU and Danish policy targets.

Very high speed coverage with 100 Mbps and more has also substantially risen. While,

in 2010, download speeds of 100 Mbps were available to 23% of households, this rate

increased to 70% in 2013. In terms of upload speeds, there has also been significant

improvement: In 2013, 55% of households had access to upload speeds of 100 Mbps,

an increase of 33 percentage points compared to 2010.

19 See DBA, Broadband Mapping 2013, p.4.


Figure 1: Coverage – Percentage of households and businesses passed by

a fixed broadband network enabling 2, 30 and 100Mbps speed,

2010 and 2013

(a) Download speed (b) Upload speed

Note: The coverage figures include households and businesses. On 1 January 2013, the number of homes in Denmark was 2.6 million and the number of businesses was 284,000. This added up to a total of 2.89 million homes and businesses.

Source: DBA

Compared to other European countries Denmark fares very well in terms of NGA

coverage. In January 2014, 82.6% of Danish homes and businesses had access to

NGA with speeds of 30 Mpbs and more compared to an EU average of 61.8%.20

Technologies

DSL is the most widespread fixed broadband technology as is shown in Figure 2. It is

available to more than 98% of Danish households and businesses. In 2012, VDSL was

available to 20.7% of homes and businesses, while DOCSIS3 achieved a coverage rate

of 60% and fiber of 43%. For mid-2013, DBA’s data show coverage rates for DSL of

98%, cable 63% and fiber 43%.

20 European Commission, Implementation of the EU regulatory framework for electronic communications – 2014 (Commission Staff Working Document), p. 82.


Figure 2: Coverage by technology – Percentage of households passed by a

fixed broadband technology, 2012

Source: Point Topic, Broadband Coverage in Europe in 2012.

As is shown in Figure 3, roll-out of cable and fiber is marked by significant regional

differences:

• Cable coverage is provided by TDC (YouSee) and SE (Stofa). It is highest in

and around the largest cities in Denmark.

• Fiber coverage is mainly based on the deployment of utilities. Fiber is prevalent

in large parts of Jutland and certain areas of Funen and Zealand. The fiber

utilities have deployed fiber mainly in their respective public utility areas.21 A

substantial part of fiber networks are rolled out in areas, where there is little or

no cable coverage. The former DONG Energy’s fiber network has been acquired

by TDC in 2009. The DONG network is mainly concentrated in parts of

Copenhagen and in Northern and Eastern Zealand. In 2013, TDC also acquired

the fiber (and cable) operator ComX which serves around 34,000 subscriber

households in Copenhagen and North Zealand.22

21 SE in Southern Jutland and SEAS-NVE on Zealand are also active outside their home base.

22 TDC’s fiber acquisitions were not subject to merger control proceedings as the acquired companies had a revenue of less than 100 mio. DKK.


Figure 3: Coverage of cable and FTTH by zip code, mid-2013

(a) Cable (b) FTTH

Source: DBA, Broadband Mapping 2013, p. 12, 13

Compared to other European countries, Denmark fares very well in terms of FTTP23

coverage (43% versus EU average of 12%) and cable Docsis 3 coverage (61% versus

EU average of 39%).24 In both technologies, Denmark is ahead of many other Member

States.

Consumer choice

An important indicator of infrastructure competition is access of end users to multiple

platforms25. While it is known that 98% of homes have access to DSL, 63% to a coax

network and 43% to a fiber network (mid-2013), there is no precise information on the

extent of network overlap. Thus we can only roughly estimate how many Danes can

benefit from access to three, two or only a single platform.

The estimation is illustrated in Figure 4. Given that DSL is almost nationwide, it is clear

that cable networks overlap with DSL. The same is true for fiber networks, which

overlap with DSL. However, only sketchy information exists regarding how many

households benefit from both cable and fiber (in addition to DSL). Based on the

available information our best guess is that roughly 20% of homes and businesses may

benefit from both cable and fiber (in addition to DSL). This is depicted in Figure 4.

23 FTTP = Fiber-to-the-home, covers both fiber-to-the-home (FTTH) and fiber-to-the-office (FTTO).

24 Point Topic, Broadband Coverage in Europe in 2012, pp. 80 ff.

25 In the context of this analysis, only fixed network broadband has been considered.


Figure 4: Overlap of infrastructures (lower bound for overlap of DSL, cable

and fiber)

Source: WIK

With the assumption that 20% of homes have access to both cable and fiber in addition

to DSL, and taking into account that 2% are not be passed by any fixed broadband

infrastructure, the rest of the picture can be deducted (see Fejl! Et bogmærke kan ikke

henvise til sig selv.):

• 43% will have access to both DSL and cable,

• 23% will have access to both DSL and fiber, and

• 12% will have only access to DSL.

Table 6: Availability of broadband infrastructures to end-users

Number of available platforms Technology % of homes and business

3 DSL, cable & fiber 20%

2 DSL & cable 43%

2 DSL & fiber 23%

1 DSL only 12%

0 None 2%

All 100%

Source: WIK estimate

It should be noted that much of the overlap between DSL and cable does not allow

consumers a competitive choice regarding fixed network broadband as TDC is

integrated into both. There is also a slight overlap of SE’s fiber network with its (Stofa)

cable network.

2.5 Penetration

Denmark is almost fully penetrated with broadband. It also fares well for speeds of

30Mbps, but - like other EU countries - has a weak penetration with speeds of


100Mbps. Thus the good NGA coverage has not yet transformed into more widespread

usage.

Speeds

At the end of 2013, there were 2.3 million fixed broadband subscriptions, which

corresponds to a penetration rate of 80% of Danish homes and businesses (see Figure

5).26

Figure 5: Penetration – Share of households & businesses with a fixed

broadband subscription, 2007-2013

Note: Besides households, the penetration figures also include businesses.

Source: DBA

Denmark has also witnessed an increase in penetration of NGA broadband. At the end

of 2013, 19.8% of Danish households and businesses subscribed to a fixed broadband

connection with a (download) speed of 30Mbps or more (see Figure 6). In contrast,

demand for connections with very high speeds of 100Mbps has remained very weak

with a penetration rate of only 1.3%.

26 In 2013, the total number of homes was 2.6 million and the number of businesses was around 280

thousand according to Statistics Denmark.


Figure 6: Penetration by speed – Percentage of households & businesses

with a fixed broadband subscription up to 30 Mbps respectively 100

Mbps, 2008-13

Note: The penetration figures also include businesses.

Source: DBA

Denmark has one of the highest household penetration rates for standard broadband.

Only two EU countries, Netherlands and UK, had a higher rate Q1/2013. However, in

terms of connections with at least 30 Mbps, Denmark only occupies a middle rank.27

Penetration figures based on population (rather than households) provide the following

picture:28 Denmark has the highest fixed broadband penetration rate in the EU. In

January 2014, there were 41.1 broadband subscriptions per 100 inhabitants, while in

the EU the average penetration rate was only 29.8%. For NGA penetration, Denmark

fares better if penetration is based on population: 10.3% of Danes had a broadband

connection with at least 30 Mbps, while the EU average stood at 6.3%. The situation is

much less favorable in ultrafast broadband. Only 0.7% of Danes had subscribed to a

broadband connection of 100Mbps or more, while the EU average was 1.6%.

Technologies

Figure 7a shows the number and shares of fixed broadband subscriptions by

technology. While the share of cable and fiber has increased since 2009, the share of

DSL has decreased. In 2013, 51% of the subscribers in Denmark use xDSL, while cable

is used by 28% and FTTH by 13% of the subscribers.

27 See Ofcom, The European Broadband Scorecard, Research Document, 12 March 2014, p. 31.

28 http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?action=display&doc_id=5935


At the end of 2013, 42% of fixed broadband subscriptions were based on NGA

technologies. Cable connections upgraded to DOCSIS 3.0 accounted for 21% of all

connections, fiber for 15% and VDSL for 5% (Figure 7b).

Figure 7: Broadband subscriptions by technology, 2003-2013

(a) 2005-2013 (b) End 2013

Source: Erhvervsstyrelsen, Telestatistik, Andet halvår 2013

2.6 Retail prices

So far, the relatively high market concentration has not stood against a favorable

development of fixed broadband prices. In fact, prices have dropped significantly during

the past years. Figure 8 shows the price development of the cheapest broadband

contracts for different bandwidths.

Figure 8: Price of cheapest fixed broadband subscriptions (DKK), 2004-2013

Download/upload speed

(1) 2004-2013 2009-2013 2010-2013

2.048/512 kbit/s -78.1% -3.6% +25.2%

4.096/512 kbit/s -18.2% -12.6%

10/1Mbit/s -26.2%

20/2 Mbit/s -34.0%

(1) Advertised speed



Compared to other EU countries, Denmark fares well in terms of broadband prices.29

The van Dijk study carried out for the European Commission shows that, while never

being the cheapest, Danish prices are for many broadband categories relatively

favourable.

Figure 9 shows the median prices (calculated on Purchasing Power Parity) for stand-

alone broadband with 12 to 30Mbps of download speed in the EU. The median prices

vary between €22 and €102 for a standalone offer with a download speed between 30

and 100 Mbps. The median prices were the lowest in Romania (€22), Lithuania (€22)

and Latvia (€23). Denmark, while not the cheapest, fares quite well in this comparison.

Figure 9: Broadband retail prices (Euro PPP), stand-alone broadband offers,

2014

Source: European Commission, Broadband Markets, Digital Agenda Scoreboard 2014, (http://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CCkQFjAB&url=http%3A%2F%2Fec.europa.eu%2Finformation_society%2Fnewsroom%2Fcf%2Fdae%2Fdocument.cfm%3Fdoc_id%3D5810&ei=4-z6U4fqCsflaqLtgfAG&usg=AFQjCNEhm50kFOkERra63B4JTPHlH_zGUQ&bvm=bv.73612305,d.ZWU&cad=rja ).

2.7 Summary

The assessment of the market structure reveals structural factors that are unlikely to be

conducive to sustainable competition, namely

• A very high and stable concentration rate, with the incumbent TDC consistently

leading its competitors by a large market share gap, both in broadband, TV and

bundles;

29 Surveyed categories include stand-alone broadband, double play and triple play bundles for varies speeds. See Van Dijk, Broadband Internet access cost (BIAC) 2013: Prices as at 1-15 February 2013. See also the summary provided it in Communications Committee, Broadband access in the EU: situation at 1 July 2013, p. 28-33.


• TDC operating, for the time being, the most important two infrastructures,

copper/DSL and coax, and other players being limited to a regional footprint or

being heavily dependent on access to TDC’s network infrastructure;

• Relatively high entry barriers despite a comprehensive set of access obligations

imposed on TDC in relation to wholesale unbundled local access and wholesale

broadband access. The economies of scale related to the purchase of wholesale

broadcasting channels create a further barrier.

The unfavorable structural conditions, for the time being, do not seem to have

negatively affected market performance:

• Standard broadband is available to virtually every home and business in

Denmark. The country is also well covered with broadband networks allowing

speeds of 30Mbps and more. Network roll-out or upgrade for speeds of

100Mbps has progressed well.

• Standard broadband is highly penetrated. Take-up of NGA broadband is

satisfactory. Worrying from a policy point of view is the very low household take-

up of very high speeds of 100Mbps and more, but this may also be a direct

effect of weak demand and low willingness to pay for such speeds.

• Retail prices of fixed broadband have declined over the last years, and in a

European comparison, Denmark fares well.

However, it is doubtful whether in the presence of largely unfavorable structural

conditions the good market performance will persist in the longer term. Quite to the

contrary, the current market structure stands against sustainable competition and is

unlikely to promote consumer welfare in the longer run. The following sections 3-5

address in more detail some of the structural problems related to vertical and horizontal

integration and look at the role of fiber utilities as a procompetitive factor.


3 Vertical integration and competition in the broadband market

Section 3 assesses the reasons for the strong degree of vertical integration in the

broadband market and looks at the advantages and disadvantages of opening up the

vertical value chain through access.

3.1 Advantages and disadvantages of vertical integration

The value chain in broadband - simplified and neglecting content – includes:

• the (passive) local loop,

• active components,

• aggregation network,

• core network,

• global Internet connectivity, and

• retailing.

If broadband is bundled with television, there is a second value chain on the television

side comprising:

• content rights,

• broadcasting channels,

• wholesale aggregation of channels into packages and

• retailing television (packages of channels) together with broadband.

The TV value chain is further explored in section 4, this section focuses on the

broadband value chain.

Broadband operators in the Danish broadband market are vertically integrated into the

broadband value chain to varying degrees as is shown in Table 7.

• TDC is integrated into all stages of the value chain and, only for global Internet

connectivity (access to www), partially depends on peering and transit

arrangements with other operators.

• The utilities under the Waoo! brand are also vertically integrated, except for

global Internet connectivity.

• Telia and Telenor do not own local loop infrastructure and depend on access to

unbundled local loops and bitstream access at higher network levels. Though

benefitting from international infrastructure of their parent companies, they also

depend on peering and transit arrangements as any other operator in Denmark.


Table 7: Degree of vertical integration in the Danish residential broadband

market

Company Platform Local loop

Active compo-nents

Aggre-gation

network

Core network

Internet connec-

tivity

Retail-ing

TDC Copper/DSL, cable, fiber

√ √ √ √ (√) √

SE Cable, fiber

√ √ √ √ √

Other utilities

1)

Fiber √ √ √ √ √ 1)

Telia Copper/DSL (√) 2)

√ √ (√) 3)

√

Telenor Copper/DSL (√) 3)

√ √ (√) 3)

√

1) Under Waoo! brand.

2) Telenor and Telia rent the ULL and VULA for part of their customers, for the other part they use

bitstream access.

3) Telenor and Telia can use international infrastructure of their parent companies.

Source: DBA

Vertical integration entails advantages and disadvantages, both at the firm and the

macroeconomic level. These are outlined in the following (neglecting global Internet

connectivity where all companies depend on peering and transit arrangements with

other operators).

Firm level perspective

A major advantage of vertical integration at the firm level is the savings from

internalizing transaction processes between different levels of the value chain within a

single company. In addition, it is claimed that vertically integrated companies are better

able to link network investment to end-user preferences, since the company’s retail and

network arms may directly interact if under common ownership. This is particularly

relevant for NGA investment.

Another advantage at the firm level is the market power that firms may gain as a result

of vertical integration. This gain to a firm is highest if elements of the value chain are

integrated that exhibit large economies of scale, scope and density in combination with

sunk costs, and are thus difficult or impossible to replicate, as is the case for local

access networks. A major source of a vertically integrated firm’s market power is control

of local access infrastructure, in particular if it covers the whole country. An operator

even with limited geographical footprint may be able to deteriorate terms and prices for

individual customers if these do not have the option to switch to a competing

infrastructure. An incumbent operator with infrastructure(s) that cover(s) the whole

country will be able to significantly influence market outcomes.


Macroeconomic perspective

Transaction cost savings from internalizing market processes and the better linkage of

network investment to end-user preferences also represent clear macroeconomic

benefits.

In turn, a clear disadvantage is the market power that vertically integrated companies

derive from control of local access networks that are subject to large economies of

scale and scope in combination with sunk costs. Such market power can be used to

discriminate against non-integrated competitors by refusing access, delaying access,

degrading quality of access, and applying margin squeezes. Such strategies negatively

impact the ability of non-integrated operators to technically and economically replicate

the vertically integrated operator’s retail products. They deteriorate competition in the

retail market and may result in foreclose of the market to new entrants.

3.2 Whether it matters if the infrastructure is closed or open

It clearly matters whether infrastructure is closed or open. Given the lack of replicability

of local access infrastructures, only 2-3 operators may be able to compete on an end-

to-end basis and in lower density regions not more than a single operator may be

financially viable. In these circumstances, competition on an end-to-end basis will not

be effective. Rather, choice for consumers and competition at the retail level will

strongly depend on the provision of network access.

Operators owning infrastructure that is difficult to replicate may provide access as a

result of regulatory obligations or on commercial grounds. This section focuses on

regulated access of operators with SMP in upstream levels of the vertical value chain.

Commercial access to fiber networks of utilities is addressed further down in sections 5

and 6.3 of the report, symmetrical access regulation of the fiber terminating segment is

addressed in section 6.2.

Regulators address competition problems related to SMP at the upstream stages of the

value chain by access obligations. Network access obligations eliminate abuses of

market power that a vertically integrated operator may be inclined to commit in the

absence of ex ante regulation. Relevant obligations encompass:

• Access on reasonable demand;

• A reference offer and other transparency obligation such as Key Performance

Indicators (KPIs);

• Non-discrimination based on Equivalence of Output or Equivalence of Input

principles,30 in severe cases functional separation. In case of functional

30 Equivalence of Inputs (EoI) means the provision of services and information to internal and third-party access seekers on the same terms and conditions, including price and quality of service levels, within the same time scales using the same systems and processes, and with the same degree of reliability


separation, an operator transfers activities related to the local access network,

including the provision of wholesale local access products, to an independently

operating business unit. This business unit supplies access products and

services to all undertakings (including other business units within the same

parent company) under Equivalence of Input conditions, i.e., on the same

timescales, terms and conditions, including price and service levels, and by

means of the same systems and processes.

• Price control based on cost orientation or retail-minus, coupled with an

obligation not to apply margin squeezes;

• Accounting separation.

With the exception of functional separation, DBA has imposed such obligations on TDC

to address its position of SMP in the markets for wholesale physical network

infrastructure access (Market 4) and wholesale broadband access (Market 5).

Network access obligations do not put into question the firm-level benefits of vertical

integration related to transaction cost savings. As integrated operators will continue to

provide their own services to end-users, such services can compete with access-based

services of non-integrated operators.

Regulated network access entails clear benefits in terms of competition. In the absence

of any regulated access, retail markets would be unlikely to be effectively competitive,

at least in the lower density areas. Only with regulated access, barriers to entry to the

retail markets are reduced, though they may not be eliminated as we have argued in the

Danish context. Access-based competition on retail markets increases choice and

improves consumer welfare.

Although offering wholesale access does not need undermine the cost efficiencies

inherent in vertical integration, it is not costless. Significant regulatory effort may be

needed to maintain access obligations. If not perfectly calibrated (for example in terms

of price), access obligations may undermine investment incentives. Importantly, also,

mandating access at the level of networks and services does not address the

underlying issue of lack of economic replicability of the underlying infrastructure. It thus

addresses the symptoms, but not necessarily the structural cause of competition

problems.

and performance. Equivalence of Output (EoO) means the provision to access seekers of wholesale inputs comparable, in terms of functionality and price, to those the SMP operator provides internally to its own downstream businesses albeit using potentially different systems and processes. See Art. 3(g) and (h) Commission Recommendation of 11.9.2013 on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment.


4 Horizontal integration and competition in the broadband market

4.1 Impact of horizontal integration on the competitive situation

Horizontal integration of broadband and television services goes along with economic

advantages at firm and macroeconomic level, but may also have negative effects on

competition in broadband and television markets, and ultimately on consumer welfare.

Such competition concerns are related to bundling which is explored in section 4.

4.1.1 Offers of bundles

Table 8 shows to what extent operators in Denmark offer triple play bundles consisting

of broadband, voice and television:

• TDC offers triple play bundles over its copper/DSL and coax network. While for

cable subscribers basic television and broadband/voice are subject to separate

contracts, we would nevertheless qualify this as a form of bundling - provided

that broadband is tied to a basic television subscription and cannot be

purchased as a stand-alone service. TDC also offers triple play over fiber, but -

given the low coverage and the low-key marketing of fiber products - it plays a

minor role.

• SE, similar to TDC, provides triple play services on two infrastructures, fiber and

cable. The other utilities - through Waoo! - provide triple play over fiber.

• Among the access-based competitors only Telia provides triple play with

television; the offer is limited to its ULL-based customers. Telenor does not offer

television.

• Other TV service providers include Viasat and CanalDigital, which provide DTH

satellite services, as well as Boxer TV, which offers services over a DTT

network. These operators, are TV service providers without any own broadband

infrastructure.


Table 8: Offers of bundles of broadband, voice and TV

Company Brand Platform Broadband Voice Pay-TV

TDC YouSee Cable √ √ √

TDCTV IPTV/DSL √ √ √

SE Stofa Cable √ √ √

SE IPTV/Fiber √ √ √

Regional utilities Waoo! IPTV/Fiber √ √ √

Telia Telia IPTV/DSL √ √ √ (1)

Telenor Telenor IPTV/DSL √ √

Concepy (2)

Concepy IPTV/DSL √ √ (2)

Boxer (3)

Boxer DTT √

Viasat Viasat DTH satellite √

Canal Digital Canal Digital DTH satellite √

Notes:

(1) Telia offers TV services only to ULL-based customers.

(2) Potential new entrant. Not clear whether Concepy, in case of market entry, would offer pay-TV.

(3) Potential new entrant.

Source: WIK; company websites

4.1.2 Use of bundles

The total number of landline subscriptions to bundled services increased by 17.1% from

951,000 at the end of 2011 to 1,114,000 at the end of 2013 – see Figure 10. During the

same period triple play subscriptions rose by 32.0%, while subscriptions to other

bundled services increased by 11.3%.

Figure 10: Number of subscriptions to bundles (triple play, other bundles)



In late 2013, there were 519,000 subscriptions to bundles that include TV together with

fixed telephony and/or broadband, which corresponds to a share of 46.6% of all

subscriptions to bundles - see Figure 11. This is the same share as in the year before,

when 485,000 out of 1,041,000 subscriptions were bundles with TV.

Triple-play subscriptions that include TV together with fixed telephony and broadband

accounted for 317,000 subscriptions in late 2013 or 28.5% of subscriptions to bundles.

It should be noted that the share of triple play subscriptions actually went down

compared to the year before, when triple play still accounted for 30%.

Figure 11: Number of subscriptions to bundles by type of bundle


While the above market trend suggests that the demand for bundles with TV may

stagnate, other data shows that this may not have fully affected TDC:

• The share of TDC/Fullrate broadband lines with triple play out of all TDC/Fullrate

broadband lines increased from 2012 to 2014 from 28.1% to 36.5% (some of the

bundles may include mobile rather than TV).

• During the same period the share of YouSee TV lines31 with triple play out of all

TV lines remained stable at around 6.5%, while the share of dual play with TV

increased from 36.4% to 40.0%.32

31 Includes Dansk Kabel-TV and ComX.

32 TDC fact sheet.


4.1.3 Concentration

Concentration in triple play

There is a high and persistent concentration in triple play bundles, as Figure 12 shows.

TDC is by far the market leader with 62% of triple play subscriptions in late 2013. The

fiber utilities follow with a substantial gap in market shares: SE/Stofa has 19% of triple

customers, while Waoo! is included in “others”.

Figure 12: Market shares for triple play fixed line subscriptions

(a) TDC (2009-13) (b) TDC and competitors (2H/2013)

Source: DBA

Concentration in TV

Concentration in TV is somewhat lower than in broadband, though TDC is also the

market leader by a clear margin – see Table 9:

• TDC is the largest TV service provider in Denmark with an overall market share

of 52% (cable brand YouSee has 45% and TDC’s IPTV offer has 7%).

• Similarly to broadband, there is a huge market share gap between TDC and its

competitors. SE is the second largest competitor with a market share of 15%,

predominantly with customers on the Stofa cable network and to a small extent

on fiber.

• Boxer is the third largest TV provider in Denmark with a market share of 14%.

Boxer TV purchased a DTT license in 2008 and started pay TV services in 2009.

• Next are two providers of DTH satellite television, Viasat and CanalDigital, with

6% and 4% market share in the TV market.

• The fiber utility companies, marketing their services under the Waoo! Brand,

offer TV services to about half of their 260,000 broadband customers.

• TDC’s access-based competitors, Telenor and Telia do not play a role. Telia

only offers TV to a small number of ULL-based customers. Telenor does not

offer TV at all.


Table 9: Market shares in TV by operator and platform used

Company/brand

TV market share

Cable DSL Fiber DTT DTH

satellite Total

TDC/YouSee 45% 7% 0,3% - - 52%

SE/Stofa 14% - 1% - - 15%

Boxer - - - 14% - 14%

Viasat - - - - 6% 6%

CanalDigital - - - - 4% 4%

Waoo! - - 3% - - 4%

Telia - 1% - - - 1%

Telenor - - - - - 0%

Other 6% - - - 6%

Total 65% 8% 4% 14% 10% 100% (1)

Note:

(1) Sum does not round to 100% because of rounding error.

Source: Anders Jensen (TDC), Danish TV market, presentation 2013; WIK

4.1.4 Competition problems

4.1.4.1 “Technical” replicability of TV services – Broadcasting transmission

A first competition problem is the low degree of replicability of triple play services. TDC

operates two major infrastructures capable of providing broadband and broadcasting

transmission - DSL and cable - which are difficult to duplicate due to the economies of

scale, scope and density as well as the sunk costs involved.

Only two other operators can rely on end-to-end infrastructures capable of providing

broadband and broadcasting transmission, namely Waoo!, which relies on the fiber

networks of its member firms, and SE, which has both a fiber and (through Stofa) a

cable network. The coverage of these service providers, however, is only regional.

Other broadband service providers need to rely on wholesale access offers from TDC

both for broadband and TV services. The access regulations in place, however, so far

do not seem to ensure replicability of television services on any of the three platforms

used by TDC:

• TV over copper: The TV component, in principle, can be replicated on a

copper/VDSL platform with ULL or multicast bitstream access. However, the

ULL-based business model that Telia and Telenor rely on is no longer

sustainable given the migration of TDC to NGA and the longer term dismantling

of local exchanges. While alternative operators can currently continue to provide

broadband services and television from MDFs, there is a clear quality of service


disadvantage of alternative operators compared to TDC’s VDSL service.33

Moreover, the multicast bitstream access model does not seem to be financially

viable because of insufficient scale of access-based competitors. Multicast

prices involve significant scale advantages. Alternative operators do not have

the necessary market share to benefit from similar per line costs as TDC.

Alternative operators have therefore refrained from using multicast bitstream to

provide TV services. Access-based competitors may ultimately switch to a

business model based on (uncontended) VULA. This would allow, in principle, to

offer TV provided the uncontended bandwidth is sufficiently high to support the

simultaneous broadcast of multiple channels, including with HD quality.

• TV over cable: So far, cable bitstream access has not been an option for

replicating triple play services. Alternative operators can purchase cable

bitstream only for end-users, which have a TV subscription from YouSee. It

should be noted that DBA, in June 2014, consulted on a draft measure that

would oblige TDC to offer its YouSee TV channels to alternative operators on a

resale basis. Furthermore, TDC should ensure that access seekers get the

same terms and prices for content as TDC. However this only applies to the

relevant rights for analogue and clear (unencrypted) digital pay-TV channels

placed in their basic TV package. For TV channels that are not part of the basic

TV package a resale offer is subject to alternative operators striking an

agreement with the broadcasters who own the content rights.

• TV over fiber: Access to TDC’s fiber network is not a viable alternative for

replicating TV services. Regulated access to TDC’s fiber network is generally

not attractive to rely on, because of the relatively high level of charges.

Wholesale fiber access thus does not play a role neither for TV nor for

broadband. Moreover, the TDC network lacks coverage and, given TDC’s focus

on cable and DSL upgrade, also is hardly expanded.

There are also “pure” TV service providers which do not dispose of any broadband

infrastructure and which are unable to benefit from regulated network access. Viasat

and CanalDigital provide DTH satellite services on the basis of renting satellite

transponder capacity. Boxer provides services over the DTT network of Teracom, an

affiliated operator. These companies would need to resale TDC’s or another operator’s

broadband and voice services in order to provide triple play. This solution would require

a commercially negotiated resale agreement.

33 Telia is the only operator that provides TV over unbundled local loops.


4.1.4.2 “Technical” replicability of TV services – TV packages

On the content side, it is instructive to distinguish between broadcasters, aggregators

and TV service providers:

• Broadcasters produce channels based on own content and content of third

parties (notably movies and sports events), for which they need to purchase the

relevant rights. Key broadcasters in Denmark include DR (public), TV2 (public),

Viasat (owned by Swedish company MTG), sbstv (owned by US media

company Discovery), and CMore (owned by Swedish media group Bonnier).

• Wholesale aggregators (also called pay TV platform operators or distributors)

aggregate individual channels, which they obtain from broadcasters, into basic

and premium packages. Wholesale aggregators in Denmark include

TDC/YouSee, SE/Stofa, Waoo!, Telia, Viasat, CanalDigital and Boxer. Viasat is

the only wholesale aggregator that is also vertically integrated into broadcasting,

i.e. Viasat also includes own channels into its wholesale packages.

• TV service providers offer basic and premium packages to end users. TV

service provision and wholesale aggregation is vertically integrated in Denmark,

i.e. TDC/YouSee, SE/Stofa, Waoo!, Telia, Viasat, CanalDigital and Boxer both

aggregate the channels into packages and provide the packages to end-users.

The TV service provider Viasat is also vertically integrated into the production of

broadcasting channels.

Table 10 shows the major Danish broadcasters, their major channels and viewing time

share.

Table 10: Viewing time share of major channels, Q1-Q3/2012

Broadcaster Channels Viewing time share

TV2 TV2, TV2 Charlie, TV2 News, TV2 Zulu 35%

DR DR1, DR2 28%

Viasat TV3, TV3+ 11%

sbstv 5’eren, 4‘eren 10%

Other … 16%

Total 100% (1)

Notes:

(1) Sum does not exactly round to 100% because of rounding errors.

Source: Anders Jensen (TDC), Danish TV market, presentation 2013; WIK

Broadcasters generate revenues by selling television channels to aggregators (pay TV

platform operators). Each broadcaster has an incentive to license its channels to all pay

TV platform operators as long as this maximises revenues. A competition problem may

occur if a broadcaster with exclusive content (e.g. a sports channel with major football

rights) licenses its channel only to a selected pay platform operator if the latter is able to

exploit this exclusivity by strengthening its position in the retail TV market, and provided

there is a mechanism for the broadcaster to participate in the extra profits associated

with retail exclusivity. This mechanism certainly may exist, where a broadcaster is


vertically integrated into the retail provision of TV services or where a broadcaster can

strike an agreement with an unaffiliated TV service provider with a similar effect.

The Danish Competition Authority monitors the situation in relation to football rights and

has imposed certain commitments in relation to the sale of media rights to the Danish

football league to broadcasters.

There is evidence that the TV packages provided by TDC/YouSee may not be fully

replicable by all competitors. Viasat has imposed certain restrictions on operators such

as Waoo! and SE/Stofa with regard to the distribution of its channels on an IPTV

platform (The restrictions do not apply to Stofa regarding its cable customers.) In

contrast to TDC/YouSee, TV platform operators such as Waoo! and SE/Stofa are, at

least with regard to their IPTV customers, not able to unbundle the Viasat TV packages

and integrate them into their own packages. If Waoo! and SE/Stofa would like to offer

Viasat channels to their IPTV customers, they would have to resort to reselling Viasat’s

TV packages. This situation has resulted from the negotiations between the parties. To

what extent the problems in the replicability of TV services provided by TDC/YouSee

represent a concern under competition law was outside the scope of our study.

4.1.4.3 Economic replicability of TV services.

Another competition problem may be the lack of economic replicability of TDC’s bundles

of broadband and TV services. This would be the case if TDC’s average revenue from a

bundle that includes TV does not cover the sum of

• TDC’s wholesale charges for access to its copper or cable platform,

• TDC’s license cost of broadcasting channels,

• TDC’s or a reasonable efficient operator’s downstream cost i.e. (retailing and

downstream network cost).

An important issue is TDC’s license cost of broadcasting channels. TDC can exert

bargaining power, when negotiating wholesale prices for broadcasting channels. TDC

has approx. 1.384 million TV customers (mostly YouSee)34 and is able to negotiate

lower prices for its channels than other TV service providers. The price advantage of

TDC over its competitors often cited by industry sources is between 20% and 30%.

Since TDC has lower licensing costs of TV channels as well as lower costs for the

downstream activities (network costs and retailing) than any alternative operator, it may

squeeze their margins. While DBA carries out margin squeeze tests, these are currently

limited to stand-alone broadband and double play products of broadband and voice, but

do not include bundles with TV. The economic replicability of bundles with TV is

therefore not being monitored and may well be jeopardized.

34 TDC Factsheet.


4.1.4.4 OTT as a substitute to linear TV?

In Denmark, like in other Nordic countries, there is already a strong uptake of OTT

services, notably audio and video streaming services:

• Netflix and HBO entered the market in 2012 and had considerable growth rates

since then.35 Netflix already provides services to about one third of the

population.

• TDC and broadcasters like DR, TV2, Viasat and sbstv provide streaming

services such as on-demand access to shows and movies.

An emerging question is whether customers already regard over-the-top (“OTT”)

services as a substitute for linear TV services, such that an operator could substitute

one for the other. Some indications are already there:

• Average viewing time for linear television is stagnating,36 while consumption of

OTT services is increasing.

• The share of subscriptions to bundles of broadband and TV is no longer rising

and stagnated from 2012 to 2013 at 46.6%.37

• TDC data shows that the share of subscriptions with not more than “entry level”

TV has risen from 23.6% in 2012 to 26.3% in 2013.38

• Telenor and Telia seem to focus on OTT. E.g., Telenor has a partnership with

Netflix and WiMP Music. Telia has a partnership with HBO Nordic and Spotify.39

Overall however, for the time being, the majority of customers still seems to use OTT as

a complement to, rather than a substitute for, linear TV, and would not regard OTT as a

substitute for TV services. This is also reflected in the fact that TV service providers -

TDC, SE and Waoo! - have entered into partnerships with OTT providers. E.g. Waoo!

partners with Netflix, TV 2 and Viasat to carry their streaming services.40 It therefore

seems premature to conclude that bundling of broadband with television no longer can

give rise to competition problems.

4.2 Impact of TDC’s ownership of cable assets

TDC, besides its copper and fiber platform (with 98% respectively 2% of homes

covered), is also integrated into cable (50% of homes). TDC is in fact the only

incumbent telecoms operator in the EU which still owns the historical, now upgraded

35 http://zone.tmcnet.com/topics/articles/350754-netflix-grows-dramatically-nordic-countries.htm

36 Anders Jensen (TDC,) Danish TV market, presentation 2013.

37 Erhvervsstyrelsen, Telestatistik, Andet halvår 2013.

38 TDC factsheet.

39 http://www.broadbandtvnews.com/2013/02/08/hbo-goes-live-in-denmark/

40 http://advanced-television.com/2013/11/01/netflix-adds-3rd-cable-partner/


cable network. The common ownership of copper/fiber and cable infrastructure entails

negative consequences for investment and competition:

• It eliminates infrastructure competition between copper/fiber and cable; and

• It may, under certain conditions, reduce access-based competition

that would otherwise exist if platforms were owned and managed by separate

companies. The negative impact on competition results from TDC’s incentives to

prioritize cable over copper upgrade and fiber roll-out. This is explained in more detail in

the following.

Infrastructure-based competition

The ownership of cable network infrastructure reduces TDC’s incentives to invest into

upgrading its copper network with FTTC/VDSL2 and vectoring in areas where there is

cable infrastructure. It should, however, be noted that investment decisions may not

always be a clear-cut exercise since the distribution of copper and coax is mixed, i.e.

one street may have coax and the parallel street may be provisioned by DSL. We would

therefore expect that there may well be overlapping areas of network upgrades.

Nevertheless, TDC’s plans for upgrading its copper network with vectoring technology

suggest that incentives exist to start this primarily in areas with no cable coverage.

TDC’s vectoring deployment plans give a lower priority to areas, where more than 75%

of the addresses have access to coax with speeds of 100Mbps.

In case of separate ownership of cable infrastructure, incumbents clearly have an

incentive to upgrade their copper networks across the territory and in particular in areas

where there is cable coverage. Common ownership of copper and cable assets leads to

the opposite situation, with a lower priority for vectoring and a lower degree of

infrastructure competition in cable areas.

Ownership of an extensive cable network may also reduce TDC’s incentives to invest

into fiber in areas with cable coverage. TDC has hardly invested in FTTH, except when

buying the fiber networks of DONG Energy (2009) and ComX (2013). Moreover,

competitors have claimed that TDC mainly uses the DONG fiber network as a feeder

net to support higher bandwidth and expand footprint on copper (FTTC) and cable

networks (node splitting), but less so for FTTH. This all suggests that TDC’s ownership

of cable has reduced the extent of infrastructure competition compared to a situation

with separate ownership of the cable platform.

Access-based competition

TDC’s incentives to prioritize copper upgrade with vectoring in areas with no cable

coverage may also be problematic for access-based competition. Alternative operators

which rely on access to TDC’s copper network (ULL, VULA or bitstream) may face

delays in the upgrade of the speeds necessary to compete with cable. This is a

regulatory challenge that DBA has tried to address in two ways.


First, DBA obliged TDC to offer access to its cable network. The cable access obligation

that has been imposed, however, is unlikely to render cable access a good wholesale

substitute for copper access for a number of reasons:

• Physical unbundling is technically not feasible for cable networks given that

bandwidth is shared between individual subscribers.

• Alternative operators can use the cable bitstream product only for end users that

have a TV subscription. Alternative operators thus cannot offer dual play or triple

play bundles with television. This may, however, change in the future, as DBA

has proposed to impose a resale TV obligation on TV, which was consulted in

June 2014. Finally, alternative operators have claimed that the wholesale charge

of cable bitstream is too high. The regulated price is, however, expected to drop

significantly as of January 1, 2015.

• Mixing or changing wholesale platforms creates complexity both at end-user and

wholesale level. Alternative operators therefore tend to focus on a single

platform, namely DSL.

Second, DBA recently obliged TDC to meet reasonable requests from the alternative

operators regarding vectoring. Thus, in principle, TDC is obliged to deploy vectoring and

provide VULA even if it would not decide to deploy vectoring itself. The purpose of this

requirement is to act against any incentives of TDC to limit the use of vectoring to street

cabinets outside the footprint of its cable coax network in order to foreclose competition

on NGA. It remains to be seen to what extent the vectoring obligation can be effectively

implemented to become a driver for vectoring upgrade in cable areas.

Note that the stated negative impact of TDC’s common ownership of copper and cable

platforms on access-based competition is a valid argument only if the alternative

scenario - separate ownership - would not go along with a sufficient increase of

infrastructure-based competition that justifies the deregulation of wholesale access

markets. If the creation of an independent cable operator led to a significant enough

increase in infrastructure-based competition, access-based competition would become

less important for the overall effectiveness of competition and market performance. This

would justify deregulation of wholesale access markets and a likely (and unproblematic)

decrease in access-based competition.


5 Fiber networks owned by utility companies and competition in

the broadband market

Section 5 looks at the impact utilities have on competition in the Danish broadband

market. It addresses the importance of utilities for competition in the current market

environment, where utilities compete for consumers and businesses with end-to-end

broadband services. The section also looks at incentives for commercial access to fiber

networks. By “commercial access” is meant the provision of access on freely negotiated

terms, conditions and prices.

5.1 Impact of utility companies with closed fiber networks on competition

Utility companies have become an important competitive force in the Danish broadband

market, with a focus on providing broadband as well as double play and triple play

bundles to residential users.

The fiber networks cover large parts of Denmark. In mid-2013, 43% of Danish

households were passed by a fiber network. Note that this figure also includes the

DONG network acquired by TDC in 2009.41 Figure 13 shows the geographical

distribution of the utilities in 2010, when SE still marketed its services under the Waoo!

brand. The fiber networks under the Waoo! brand are concentrated in Jutland, Funen,

North and South Zealand, Lolland and Falster.

41 “Passed by” has a different meaning than in many other EU countries. Fiber operators in Denmark extend the fiber connection to the end user, ie install the drop cable, only at the time of signing a contract with end users for the provision of broadband services over fiber.


Figure 13: Utility companies investing in fiber networks, 2010

Source: Danish Energy Association in FTTH Council (2011), Case Study Collection, p. 10.

The fact that SE and the utilities under the Waoo! brand are the only players in the

residential broadband market that compete against TDC in infrastructure makes them

particularly important for market outcomes. The competitive impact of independent fiber

networks has been somewhat weakened by TDC’s acquisitions of DONG Energy and

ComX, which have infrastructure in Copenhagen and North Zealand.42

Utilities have significant longer term growth potential stemming from the fact that they

can offer very high, symmetric speeds. However, they have also some disadvantages

that slow down their progress:

• Compared to TDC, they are of much more limited scale. This results in higher

(per subscriber) network and retailing costs.

42 TDC can acquire companies with a turnover of less than 100 million DKK without going through a merger approval procedure. See Article 12.1 (i) Competition Act (http://en.kfst.dk/Competition/~/media/KFST/English%20kfstdk/Competition/Legislation/Engelsk%20udgave%20af%20lovbekendtgoerelse%207002013.pdf )


• The utilities also have higher (per subscriber) license costs for broadcasting

channels.43

5.2 Advantages and drawbacks of commercial access to fiber networks

Would commercial access to fiber networks increase the utilities’ impact on

competition? By “commercial access” is meant the provision of access on freely

negotiated terms, conditions and prices. Under commercial access, terms and prices

could differ between access seekers and they would usually not be made transparent.

Fiber utilities could also make agreements with preferred partners and refuse access to

others. Commercial should therefore not be confounded with “open access”.44

Demand for access could take several forms:

• Service providers without own network infrastructure could express a demand

for reselling the utilities’ broadband services, stand alone or bundled with the

utilities’ television and voice services.

• Other network operators could ask for bitstream access, possibly with

multicasting functionality to allow the provision of television. Given the

economies of scale involved in multicasting, it is however doubtful whether there

is a demand for multicasting from smaller operators.

• Other network operators could demand access to unbundled fiber (where point

to point architecture is used) or to the fiber terminating segment (in-building

cabling from a distribution point). TDC could have a demand for such forms of

access in areas, where they do not have fiber. The two access-based

competitors, Telenor and Telia, could regard unbundled access as an option as

their ULL-based business model is jeopardised following the migration of TDC to

FTTC and the longer term dismantling of local exchanges.

The utilities’ incentives to provide commercial access

Whether the utilities have an incentive to supply wholesale access on a commercial

basis will depend on whether it is profit enhancing. The impact of commercial access on

the utilities’ profits is the net result of the following effects:

43 See section 4.2.2.

44 By open access is meant the provision of access on fair and reasonable terms, for which there is some degree of transparency and non-discrimination. Open access is usually the result of regulatory obligations of varying nature, e.g. obligations under the SMP framework, obligations under state aid rules or, more rarely, commitments under merger regulations. As an OECD study has pointed out, voluntary “open access” agreements remain relatively rare. The available evidence indicates that the incentive for commercial network providers to grant access to its infrastructure on open terms remains fairly low. See OECD (2013), “Broadband Networks and Open Access”, OECD Digital Economy Papers, No. 218, (OECD Publishing http://dx.doi.org/10.1787/5k49qgz7crmr-en ).


• Expansion benefits: Access agreements may expand the addressable market by

promoting broadband to new consumer segments. This could be done by “no

frills” offers, fashionable brands, or particular value added offers. In fact, a

market expansion effect is not unlikely as the potential demand for very high and

symmetrical speeds is largely untapped. Only 1.5% of households in Denmark

have so far subscribed to a connection with speeds of 100Mbps or more.

Access agreements could also assist in the expansion of fiber footprints by

ensuring the quicker realization of a sufficient penetration. The expansion effect

would increase the utilities’ profits.

• Cannibalization costs: Access agreements may create competition for the

utilities’ own subscribers and cannibalize their subscriber base. Utilities currently

have a fiber specific competitive advantage in terms of very high, symmetric

speeds. If utilities entered into access arrangements, they may get outcompeted

by wholesale customers which would then be able to offer the same product to

end-users. The cannibalization effect decreases the utilities’ profits. The

cannibalization effect could be particularly relevant in case of access

arrangements with TDC.

• Implementation costs: Opening up fiber networks requires implementation of a

wholesale interface and, except for resale, access points. While this is a

straightforward exercise in the case of a single company such as SE, it could be

a more complex issue in case of the other utilities which cooperate under the

Waoo! brand. In case of Waoo!, the utilities - for commercial reasons - may want

to harmonize access conditions and define common wholesale products as well

as establish a joint wholesale arm for marketing the wholesale services. In other

words, the utilities may see the need to create a “Waoo! wholesale” in addition

to the existing “Waoo! retail”. The implementation costs of a wholesale platform

are unlikely to be a decisive factor in the case of SE. It will however play a role

for the many utilities under the Waoo! brand if these would want to harmonise

their wholesale offers.

From an analytical point of view, utilities have an incentive to negotiate commercial

access arrangements, where these are profit enhancing, in other words, where the

added profits from the expansion effect outweigh the implementation costs and the

profit loss from the cannibalization effect. We believe that there is a case for such

access arrangements, as they may help to tap into potential demand for very high and

symmetric speeds with lower prices and/or better targeted offers. Since the expansion

effect is heavily dependent on demand and willingness to pay for very high speed

symmetric broadband, utilities may however feel that the time is not yet ripe to enter into

access arrangements. It is also debatable which companies would represent attractive

access partners for the fiber utilities. In the case of TDC, there may be an important

cannibalization effect. In addition, there could be competition concerns about an access

partnership with TDC.

Impact of access arrangements on competition

Access arrangements between fiber utilities and service providers with no infrastructure

(pure resellers) or operators that do not have local access infrastructure (e.g. traditional


access-based competitors such as Telenor and Telia) would promote competition. In

contrast, if fiber utilities entered into access arrangements with TDC, the impact of

competition needs to be carefully assessed. Such agreements could potentially

undermine the existing infrastructure competition between TDC (predominantly

DSL/cable) and the utilities (fiber). TDC is likely to enjoy a market dominating position in

the retail broadband market, which would possibly be further strengthened if TDC can

benefit from access to the utilities’ fiber networks.


6 Options beyond SMP regulation to improve competition in the

broadband market

The preceding sections have shown that, despite the comprehensive set of SMP

remedies imposed on TDC, the structure of the Danish broadband market remains

problematic. It is likely that, over the longer term, the market structure characterized by

TDC’s control of copper and cable and its dominant position in the retail market could

have a negative impact on market performance.

We have identified and assessed a number of options other than the SMP remedies

already imposed by DBA for improving competition. The discussion of these options has

been informed by positive experiences in other countries. The options considered in

section 6 include the following:

• Municipalities could facilitate the roll-out of passive infrastructure, notably ducts,

and provide access to ducts of public utilities under their ownership (option 1);




• Utility companies that have invested in and operate fiber networks could offer

access on commercial terms (option 3);


services on an “Equivalence of Input” basis (option 4); and


In the following, we describe the option and why we have selected it, we assess its pros

and cons, describe the experience from other countries and discuss the relevance of

the option in the Danish context.

6.1 Municipalities to play a greater role in supporting digital

infrastructure deployment (option 1)

6.1.1 Description of option

Danish municipalities could potentially play an important role in supporting the

deployment of digital infrastructure. They are responsible for setting the conditions

associated with planning approval for new buildings and renovations and for approving

‘rights of way’ for physical infrastructure. Where they own local utilities - primarily

relating to water and sewage45 - they also control the associated duct infrastructure.

45 Our understanding is that the majority of electricity utilities have been fully privatized.


This responsibility means that they could in principle support fast broadband

deployment by easing planning for deployment, installing or requiring the installation of

ducts or fiber in new build properties and by offering access to their own facilities on

attractive terms.

We have identified this option because of positive experience in a number of EU

countries, notably Portugal in relation to ensuring NGN-ready in-house wiring, mapping,

mandated access to passive infrastructure and co-ordination of civil engineering works.

Sweden and Finland have developed good practices in civil engineering co-ordination,

Germany in mapping and France and Spain in fiber in-house wiring.

Moreover, an EU Directive has recently been adopted46 which will require all member

states by 1 January 2016 to adopt policies to reduce the administrative burden and cost

of infrastructure deployment (Directive on Measures to Reduce the Cost of Deploying

High-speed Electronic Communications, hereafter also termed the “EU Infrastructure

Directive”). Alongside an obligation for all network operators (including not only

telecoms operators but also operators of energy networks and those distributing water)

to meet reasonable requests for duct access, the Directive requires member states to:

1. Ensure that all new buildings or renovations after 31 December 2016 must be

equipped with a high-speed-ready in-building physical infrastructure;

2. Ensure that those responsible for the transport of utilities such as water must

offer access to their physical infrastructure on fair and reasonable terms and at a

reasonable price;

3. Ensure that operators which undertake civil works fully or partially financed by

public means should meet reasonable requests for co-ordination of these works;

4. Ensure that information is available about civil works permits from a single point

with the potential for applications to be made from a single point.

5. Ensure that communications providers have the right to access any existing in-

building physical infrastructure on fair terms and conditions, including price.

Good practice in supporting infrastructure deployment has been observed in some

areas of Denmark. For example, the Nexia Nordic Broadband City Index47, notes that

most Danish municipalities have a digging information system and require network

operators to coordinate their digging and deny digging in the same area/duct for a time

period of 3 to 5 years. However, we understand that there may still be scope for further

improvement, drawing lessons from neighboring countries and elsewhere in Europe.

46 Directive on measures to reduce the cost of deploying high-speed electronic communication networks. Provisional text at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0061 .

47 Nexia, Nordic Broadband City Index: How cities facilitate a digital future, June 2012, p. 28 (http://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDMQFjAA&url=http%3A%2F%2Fa5.mndcdn.com%2Fimage%2Fupload%2Ft_attachment%2Fwen06fka12adrp4up3en.pdf&ei=kxPJU_OvM4LBOOeLgKAH&usg=AFQjCNGzMYRQOmV5KjvL3hleeEORFDGACA&bvm=bv.71198958,d.ZWU&cad=rja )


This policy option considers a scenario whereby the EU Directive is transposed into

national law48 in a way which gives municipalities a core responsibility to support fiber

deployment in the planning process, co-digging and in access to existing ducts.

Municipalities could also act in advance of such legal requirements by incorporating

these measures into their current practices. In this context, we consider five

approaches:

1. The requirement to make new dwellings ‘high-speed-ready’

If not already ensured (which we understand is largely the case in Denmark),

municipalities could of their own volition, or following adoption of EU legislation, require

that all new buildings, including multi-dwelling units be made high-speed-ready through

the pre-installation of fiber infrastructure and/or ducting to facilitate such infrastructure.

2. Comprehensive information exchange and mapping on infrastructure availability

The former Danish Enterprise and Construction Agency49 implemented a national

internet portal, “The Danish Register of Underground Cable Owners”50 to record details

of existing physical underground infrastructure. Local governments as well as

companies wishing to lay down cables use this portal, which is now administered by the

Ministry of Housing, Urban and Rural Affairs.51 However, we understand that the

register provides only limited information and would not be sufficient to allow interested

operators to verify the availability of ducts for specific network roll-out plans. The

implementation of a comprehensive mapping scheme, such as has been introduced eg

for the ducts of Portugal Telecom, could help to operationalize this option, if there is

sufficient demand to cover the costs of such a solution.52

3. Municipal duct and fiber deployment

Until recently, Danish municipalities did not play a role in the roll-out of passive

infrastructure for use by third parties. However, in January 2014, the DBA adopted

guidance on the interpretation of the Business Growth Act53, which signaled that

municipalities can support the roll-out of telecommunications infrastructure including

through constructing or tendering for the construction of passive infrastructure such as

ducts and masts, for the use of any interested operator. It is not yet clear how widely

this option has been used. A more pro-active approach could be followed, if there is

demand for such a solution. There could also be consideration as to whether, as

48 Deadline for transposition is 1 January 2016

49 The Danish Enterprise and Construction Agency was merged with two other agencies into the Danish Business Authority (DBA).

50 www.ler.dk.

51 ECTA Regulatory Scorecard 2009, Annex V Denmark, p. 9.

52 See section 6.1.3.2.

53 DBA Guidance on the interpretation of the Business Growth Act January 2014 (http://erhvervsstyrelsen.dk/file/448701/vejledning.pdf )


practiced in Sweden, municipalities could themselves install dark fiber on an open

access basis.

4. Rental of ducts and fiber owned by municipalities or subsidiary utilities

In addition to the construction of new ducts, municipalities could facilitate access to

ducts of their subsidiary water and sewage utilities, as will be required following

implementation of the EU Infrastructure Directive. The Nexia Index found that in 2012 in

contrast with Sweden, there was no rental of ducts or fiber by Danish utilities.54 It is

unclear whether this is due to lack of suitable offers or lack of demand.

5. Digging requirements

Another issue affecting deployment costs concerns requirements around rights of way,

such as permission to use microtrenching, the required depth for digging and re-

surfacing obligations. The Nexia Index noted varying practices across the countries they

surveyed, with implications for deployment costs. A review of guidelines on such

measures, to see if any restrictions are objectively justified, could be relevant.

6.1.2 Pros and cons

Whether the options to boost the role of municipalities bring net benefits depends

largely on the costs of implementing the options in relation to the likely uptake of these

solutions and consequent increased roll-out of infrastructure. These may vary

depending on the solution.

Two of the options seem in general to offer advantages with relatively little cost:

• There seem to be few disadvantages with taking measures to make new

buildings fiber-ready. Indeed, we understand this may already be standard

practice and will soon in any event become a legal requirement across the EU.

• The administrative cost of reviewing guidelines concerning digging requirements

would seem to be low, and could give operators additional options when

deciding whether and where to install infrastructure.

The other three options which concern the provision of detailed information, the

promotion of the role of municipalities in deploying and renting ducts, and potentially

fiber, entail greater costs and/or potential disadvantages.

• Experience in Portugal suggests that live mapping could be helpful in facilitating

shared duct usage. However, the costs of establishing and maintaining a

54 Nexia, Nordic Broadband City Index: How cities facilitate a digital future, June 2012, p. 28.


system, applying to all players in the market could be significant and therefore

could only be justified in the presence of clear demand.

• The construction of ducts by municipalities and rental of such (alongside rental

of access to ducts of municipally owned utilities) could lower costs for those

planning to deploy infrastructure, but taking pro-active measures in this regard is

likely to be justifiable only in the presence of demand and if it is the most

efficient means to ensure such access (as compared for example with SMP

regulation of TDC ducts). • The construction of dark fiber by municipalities (on commercial terms and/or with

public subsidies) could in theory provide an alternative option to TDC especially

in areas not currently served by competing fiber utilities. However, it carries the

risk of potentially crowding out private sector investment in cases where this

might materialise.

6.1.3 Selected countries experience

The most comprehensive source of data concerning the current application of measures

which could be taken by municipalities to boost broadband deployment is included in

the March 2013 impact assessment to the European Commission’s proposals for what

became the Directive on Measures to Reduce the Cost of Deploying High-speed

Electronic Communications 55.

Table 1 of Annex III of the Impact assessment summarizes best practice in a number of

areas. Portugal was considered to have best practice in a number of areas including

ensuring NGN-ready in-house wiring, mapping, mandated access to passive

infrastructure and co-ordination of civil engineering works. The existing status in most

other countries was mixed, although Sweden and Finland were considered to have

good practice in civil engineering co-ordination, Germany in mapping and France and

Spain in fiber in-house wiring. We take selected cases to illustrate best practice for each

of the options.

6.1.3.1 Equipping new buildings with fiber – the case of Spain

In Spain, legislation adopted in 201156 provides that constructors of new (and

refurbished) buildings must install passive NGA infrastructure such as fiber or coaxial

cables that connect each apartment to the in-building distribution frame, often housed in

the basement of multi-dwelling units. The regulations apply to all buildings that have

55 European Commission, Impact assessment accompanying the proposal for a Regulation to reduce the cost of deploying high-speed electronic communications networks (http://ec.europa.eu/digital-agenda/en/news/impact-assessment-accompanying-document-proposal-regulation-european-parliament-and-council )

56 Royal Decree 346/2011 (March 2011) Order ITC 1644/2011 (June 2011).


„horizontal properties‟ – that is, where there are multiple owners – and so includes

office blocks and businesses as well as multi-dwelling units. Before new construction

projects are approved, a consultation must take place between the construction firm

and the broadband operators in the local area, and this is supervised by the Ministry of

Industry, Trade and Tourism. The consultation must assess which NGA deployments

are in the local region, and thus determine what type of infrastructure will be suitable for

deployment within that building. If there is infrastructure competition in the area (e.g.

both cable and FTTH), then more than one type of technology must be deployed in the

building. Deploying multiple infrastructures is more expensive than just one, but the

Ministry believes this is necessary from a competition perspective. However, a key aim

of the consultation is to avoid inappropriate in-building deployments that will never be

used, and thus would be inefficient. Service competition is also supported by the

requirement for fiber operators to share the in-building fiber network. With the exception

of Digital Terrestrial Television (DTT), where amplifiers are installed, normally only

passive infrastructure is installed. However, regulations also extend into individual

dwellings, with a minimum number of sockets per apartment specified for new

construction projects.

There are also construction standards published by Telecommunication Engineering

College under which buildings constructed after 1995 should be made ready for copper

and cable. Any operator which reaches the building has the opportunity to provide

services to any of its households. For buildings constructed after April 2011 this

regulation has been updated to include fiber cables.

6.1.3.2 Infrastructure mapping – the case of Portugal

In 2009, ANACOM, the Portuguese regulator, mandated the use of a Centralised

Information System (“CIS”), a central infrastructure atlas aimed at reducing the cost of

deploying new electronic communications equipment. Providing and regularly updating

information is mandatory for all organizations that own or operate infrastructure suitable

for accommodating electronic communication infrastructure (including roads, railways,

water and gas infrastructure). This requirement applies to local authorities, state-owned

companies, utility companies, electronic communications companies and any other

bodies that may own relevant infrastructure. Further obligations are applied to the

incumbent, Portugal Telecom (PT), which must also provide information on available

space within its ducts. Figure 14 shows an illustration of PT’s live mapping information.


Figure 14: Portugal Telecom live mapping of duct availability

Source: ANACOM Presentation, March 2014

6.1.3.3 Co-ordinated digging and duct access – the case of Portugal

Portugal’s Central Information System is intended to support the provision of

information on planned public works to facilitate shared digging.

The law stipulates that the performance of works which enable the construction or

expansion of infrastructure suitable for the accommodation of electronic communication

networks be made public so that electronic communication companies can become

associated with the planned work. This is an obligation applicable generally to public

sector companies and electronic communication companies. The notice must contain

information on the characteristics of the intervention to be performed, the period

envisaged for its completion, charges and other conditions to be observed, as well as

the deadline for joining the work and point of contact for obtaining clarifications, as well

as any provisions affecting future interventions in the area covered by the notification.

In accordance with Decree-Law no. 123/2009, notice of the performance of works must

be given on the CIS, 20 days before the start of execution, and the deadline for joining

the work is 15 days following the date of the notice.

At the time when data was collected for the European Commission’s Impact

Assessment, the CIS had not yet become operational. However, it was noted that

tender specifications had been drawn up for the design and management of the CIS,


with support from a Multidisciplinary Working Group involving experts in inspections

(inspection of telecommunications infrastructure in buildings), information systems,

infrastructure regulation and legal. In the public tender to award the CIS57, a value of

four million Euro was considered as a base price for the cost of developing and

establishing the system. To understand potential ongoing costs, it is also relevant to

consider the charges levied for use of the operational PT duct mapping system.

Operators accessing the system are charged an annual price of €1,390 to view

information for each district, up to a maximum of €92,578 for all 20 districts58. This price

is however based on relatively significant usage of the system.

Alongside rules for co-deployment, the laws state that all existing ducts that are suitable

for the provision of electronic communications networks must be made available to

operators. This includes:

• infrastructure owned by the state, local authorities and Autonomous Regions;

• infrastructure owned by entities under the supervision of the state, local

authorities and Autonomous Regions;

• public infrastructure and utility companies such as water, gas, transport and

sewerage companies, as well as roads, railways and ports.

ANACOM is empowered to determine the terms under which passive infrastructure can

be shared, and has established regulations in this regard.

Access to these ducts is defined as the owner making available physical infrastructures

such as buildings, ducts, masts, inspection chambers, manholes and cabinets for the

purpose of the accommodation, setting up and removal, and maintenance of electronic

communications transmission systems, equipment and resources. The cost of access

varies depending on who owns the infrastructure. For example, ANACOM sets the

prices for access to local authority-owned infrastructure, whilst electronic

communication companies must charge each other cost-oriented prices.

These access rules relate to existing infrastructure. No specifications are imposed on

operators deploying new ducts. Instead, the deploying operator is obliged to consult

with other operators to determine if any other operator is interested in deploying along

that route. If they are, the deploying operator must install ducts that are suitable for

sharing; if they are not, then the duct operator is free to choose which type of duct is

deployed.

57 Portugal’s Official Gazette (Diário da República) of 23 November 2010.

58 ANACOM Presentation March 2014


6.1.3.4 Municipalities constructing ducts

The Commission’s Impact Assessment did not consider the scenario of municipalities

constructing their own ducts. Nexia’s 2012 Nordic Broadband City Index, however,

reports that while at the time no Danish municipalities reported digging their own ducts,

some of the Norwegian municipalities did, and many of the Swedish municipalities did.

6.1.3.5 Effects of municipalities interventions

Very little concrete data is available linking the interventions of municipalities, for

example on requiring buildings to be ‘fiber-ready’, deploying or sharing ducts, and the

outcomes for NGA deployment and infrastructure competition.

In Portugal, duct access is considered by ANACOM to have been a major contributor to

the deployment of NGA by the cable company ZON (which has always historically

deployed cables within PT ducts and continued to do so post demerger from PT) and

other operators such as Optimus (since merged with ZON) and Vodafone.

However, recent data from ANACOM suggests that demand has been most extensive

for access to Portugal Telecom’s ducts (see Figure 15). ANACOM considers that these

are most likely to be related to SMP duct access obligations of PT, which set detailed

rules on pricing and provisioning, rather than from symmetric obligations which applied

to PT alongside utilities and municipalities. Likewise, it seems that live mapping of PT’s

duct availability may have played a greater role in supporting deployment than wider

infrastructure mapping.

Figure 15: Installation requests answered for PT ducts

Source: ANACOM presentation March 2014

The experience of Portugal at least suggests that some caution is warranted in

ascribing benefits to the sharing of utility ducts over and beyond those that could be

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gained from SMP regulation of the incumbent duct infrastructure, where this can be

made effective (i.e. where infrastructure is ducted and there is sufficient availability). At

the very least, there appears to be limited experience of the effective usage of

symmetric duct obligations, although this could change, following the implementation of

the EU Directive on Measures to Reduce the Cost of Deploying High-speed Electronic

Communications.

The effect of making buildings fiber-ready and ensuring access to in-building wiring can

also not readily be quantified, although it seems fair to conclude that, provisions in

Portugal and Spain are likely to have been supportive towards fiber deployment.

6.1.4 Relevance of option in Danish context

Actions that could be taken by municipalities to support NGA roll-out are most likely to

be beneficial to operators planning to deploy their own fiber infrastructure. In Denmark

this includes the fiber utilities and providers of business fiber access (e.g.

GlobalConnect). Measures to lower the cost of infrastructure deployment could also be

beneficial for mobile operators intending to install their own fiber backhaul for LTE, and

could be relevant for TDC in case TDC decided to expand its fiber network.

An advantage of this option is that it could support an expansion in infrastructure-based

competition, which is currently limited to certain areas of Denmark. We also note that, if

as understood, TDC’s copper and coax access networks are not fully ducted, it may be

especially relevant to pursue non-SMP measures to support infrastructure deployment,

since SMP-based duct access obligations, which have played a significant role in

supporting infrastructure-based competition in countries such as Portugal, Spain and

France, are unlikely to be relevant (at least to the same degree) in Denmark.

There are however several important caveats, which may place limits on the benefits

that can be achieved in practice with the support of municipalities:

• The scope of further viable FTTP deployment may be limited given the already

extensive existing coverage of more than 40% of households. However, these

measures could remain useful in municipalities in which fiber has not yet been

deployed or by facilitating drop cable installation to support further take-up in the

existing fiber footprint

• We understand from market participants that there is already good practice in

Denmark from municipalities on certain of these measures. For example, there

is already a strong history of co-digging, and new buildings are typically fiber-

ready.

• Even if municipalities adopted administrative measures such as those we

describe to facilitate commercial fiber deployment, laying parallel infrastructure

remains costly, and is therefore likely to be geographically limited. In this context

it is unlikely by itself to provide a magic bullet towards promoting competition for

high speed broadband across the whole territory of Denmark.


• For measures such as live mapping or duct construction which incur

implementation costs or raise administrative costs, the relative costs also need

to be weighed up against demand from Danish operators. There may be

demand from operators focused on the business segment, but it is not clear that

there is significant demand in Denmark for the use of ducts for mass-market

residential fiber deployment.

We understand that municipalities have already been given guidance concerning the

important role they can play in supporting digital infrastructure. The EU Directive on

Measures to Reduce the Cost of Deploying High-speed Electronic Communications will

require all network operators to meet reasonable requests for duct access, the sharing

of in-building wiring and introduce obligations for buildings and renovations to be made

high-speed-ready (if this is not already the case). Guidance on these issues may be

useful. In addition, the following policy options may have some relevance in a Danish

context:

• Providing best practice guidelines to minimise the cost of digging. This could

include consideration of the required depth of trenches, permissibility of micro-

trenching, as well as co-digging procedures.

• The development of a comprehensive mapping tool to support the co-ordination

of digging as well as duct access – if there is sufficient demand to cover the

costs of such a tool.

6.2 Fiber terminating segment network sharing and access (option 2)


Access obligations applied under the SMP regime are by implication asymmetric – i.e.

they apply only to the SMP operator, typically the incumbent SMP obligations also

usually involve short term rental of assets and/or services such as the rental of

unbundled loops or wholesale broadband access.

In contrast, a provision introduced in the revisions to the EU telecommunications

framework of 2009 allows for a national authority to impose symmetric obligations (ie

obligations on all operators, not just those designated with SMP) for the sharing of

wiring in cases where it is economically inefficient or impractical to duplicate this

infrastructure. Article 12 of the revised EU Framework Directive for Electronic

Communications59 states that:

Member States shall ensure that national authorities, after an appropriate period

of public consultation during which all interested parties are given the

59 Directive 2002/21/EC as amended by Directive 2009/140/EC


opportunity to state their views… have the power to impose obligations in

relation to the sharing of wiring inside buildings or up to the first concentration

point or distribution point where this is located outside the building, on the

holders of rights [to install facilities on, over or under public or private property]

and/or on the owner of such wiring, where this is justified on the grounds that

duplication of such infrastructure would be economically inefficient or physically

impracticable. Such sharing or co-ordination arrangements may include rules for

apportioning the costs of facility or property sharing adjusted for risk where

appropriate.

In practice, the provisions should enable the relevant authorities to stipulate obligations

on all operators which have installed or might install fiber access networks to offer

‘sharing’ for the ‘terminating’ portion of the network up to the first concentration point,

both for prospective and pre-existing fiber wiring. Sharing could be interpreted to mean

not just rental as is typically imposed under SMP regulation, but potentially co-financing

of such infrastructure for example by means of Indefeasible Rights of Use (IRU). The

EU Directive allows for the authority to set rules over how costs are apportioned in such

sharing arrangements.

Although the EU Directive is silent on this question, in France, national legislation

implementing these provisions60 also enables the regulatory authority to stipulate the

connection point – referred to in France as the ‘point de mutualisation’. ARCEP may

thus define the portion of the fiber access network which is ‘point to point’, enabling

physical access and full control over the network at that point by co-investing operators.

ARCEP issued decisions in this respect in 2009 and 201061.

Insofar as this option allows several operators to use the same fiber infrastructure

potentially under conditions established by the relevant authority, it could be viewed as

replacing any fiber unbundling (i.e. rental) obligations which might apply to a single

operator designated with SMP.

If fiber terminating sharing results in infrastructure competition in the provision of

downstream fast broadband services, it could also obviate the need for regulated

access to fiber-based ‘bitstream’ services, which might otherwise be mandated in the

context of market 5.62

Based on the positive experience in France and the legal framework provided by Article

12 of the revised EU Framework Directive for Electronic Communications we have

identified fiber terminating segment network sharing and access as another option to be

assessed in the Danish context.

60 French Law n° 2008-776 of 4 August 2008 on the modernization of the economy.

61 Decisions of the Authority no. 2009-1106 and no. 2010-1312 of 22 December 2009 and 14 December 2010 respectively, adopted pursuant to Article L. 34-8-3 CPCE.

62 Wholesale central access as proposed in the draft revised Commission Recommendation on Relevant Markets.


6.2.2 Pros and cons

The potential advantages of fiber terminating segment sharing mostly relate to the

improved long-term competitive market structures that may arise from this option

alongside the efficiency inherent in infrastructure sharing as compared with duplication.

In turn, improved competition could enable regulatory forbearance downstream

reducing regulatory costs and uncertainty. The main potential disadvantages are the

significant set-up costs of establishing an effective regime and risks inherent for

competition and/or investment if the regulatory regime is not appropriately calibrated.

The effectiveness of this option also crucially depends on the interest and willingness of

multiple parties to ‘co-invest’ as an alternative to running proprietary networks or relying

on regulated access (i.e. network rental).

In summary, advantages of symmetric FTTH terminating segment sharing include the

following:

• FTTH terminating segment sharing minimises inefficient duplication of costly

fiber terminating segments.

• It addresses the problem of enduring economic bottlenecks in a holistic way by

setting guidelines for all parties investing in fiber access networks – i.e.

potentially utilities alongside the incumbent and alternative operators.

• It may encourage investment by alternative operators in fiber access if it reduces

the risk of overbuild by the incumbent or other established investors.

• If it proves successful in enabling infrastructure competition, a fiber network

sharing regime could ultimately transform an existing competition regime based

on regulated rental of copper to a system of co-ownership, providing stability for

operators in the market.

• If it enables stable infrastructure competition, downstream regulation could

potentially be relaxed, reducing regulatory costs and uncertainty.

Potential disadvantages of symmetric FTTH terminating segment sharing include the

following:

• Developing an FTTH network sharing model is likely to be time-consuming in the

initial phases for the relevant authorities and all parties involved in inputting into

the process.

• If inappropriately calibrated, especially as regards pricing, such a scheme could

either limit investment in FTTH (if pricing rules prevent fair cost recovery) or limit

competition in fast broadband (if pricing is not attractive for competitors and

other SMP access options are removed or relaxed)

• The sale of long-term rights of use (Indefeasible Rights of Use, or “IRUs”)

covering a portion of fixed infrastructure is consistent with business models for

mass-market provision of fast broadband. It is likely to be less favorable

compared with existing access regulation for smaller broadband and specialist

business providers, which lack the requisite scale.


• Moving towards a symmetric regime may imply a change from existing

approaches to fiber regulation under SMP regulation. Regulatory changes could

lead to uncertainty and create new winners and losers.

• The effectiveness of this model is dependent on the willingness of all parties

with an interest in fast broadband services to co-invest.

6.2.3 Selected countries experience: France

In France, an innovative approach has been followed towards the regulation of FTTH,

which combines asymmetric duct access regulation (in the context of market 4 of the

Commission Recommendation on Relevant Markets), with a symmetric regime, based

on article 12 of the EU Framework Directive (as transposed into French law), which is

designed to facilitate co-financing in FTTH. Figure 16 shows how duct access, which

enables all operators to invest in FTTH, operates in parallel with rules on co-financing of

a shared ‘drop’ or ‘terminating’ segment of the fiber line, which avoids uneconomic

duplication of this part of the network.

Figure 16: ARCEP’s FTTH regulation

Source: ARCEP

6.2.3.1 Implementation of ‘symmetric terminating segment’ access

ARCEP requires all operators deploying vertical FTTH networks within buildings (i.e. in-

building wiring) to offer to other operators in a transparent and non-discriminatory

manner passive access to the terminating segment of the fiber under reasonable

technical and economic conditions.63 Offers should include:

63 ARCEP Decisions n° 2009-1106 et n° 2010-1312, which implement condition 34-8-3 of the French CPCE law.


• An offer to participate in the co-financing of FTTH lines for example through a

long term right of use (IRU), both from the start of the investment and

subsequently

• An offer of passive access rental.

ARCEP has identified the points of connection for ‘mutualisation’ (network sharing), on

the basis of an assessment of the economic feasibility of network duplication in different

areas. The connection point in areas identified by ARCEP as ‘very dense’ zones should

be:

• At the base of the building for buildings hosting more than 12 households or

offices; or

• At a point aggregating 100 lines for buildings hosting less than 12 households or

offices (in accordance with the Jan 21 ARCEP Recommendation).

The connection point in ‘less dense’ areas must be:

• At a point aggregating at least 1.000 lines or;

• At a point aggregating at least 300 lines if dark fiber backhaul is made available

from this point to a point aggregating 1.000 lines.

In January 2014, ARCEP took a decision to reduce the areas considered as ‘very

dense’, based on observations of the operation of the regime. The number of high

density districts was reduced from 148 municipalities representing around 6 mio.

households to 106 municipalities (5.5 mio. households – fewer than 17% of the total).

Several bilateral agreements have been signed on the basis of the symmetric

mutualisation regime, including an agreement between Orange and SFR (15 Nov 2011)

and Free and Orange (July 2011). ARCEP has resolved a number of disputes in

relation to the terms and conditions of these agreements. In practice the connection

points have either been at locations aggregating several thousand lines (in the case of

Iliad’s P2P deployments), or at locations aggregating between 300-2,000 lines, with

extension cables offered on a voluntary basis.

6.2.3.2 Pricing of FTTH network sharing

A key aspect in which ARCEP has been called on to resolve disputes relates to the

pricing of co-financing (and other access) options in the symmetric FTTP sharing

regime.

ARCEP has set out general guidelines which stipulate that the pricing conditions of

access to the terminating segment of optical fiber networks must be reasonable and


respect the principles of non-discrimination, objectivity, relevance and efficiency.64 In

addition, the rate of return on capital employed for the determination of the tariff

conditions must take into account risk and give an incentive to the investing operator.

ARCEP normally requires that three options are made available under ‘mutualisation’

agreements. These include:

• Co-financing in advance of the investment;

• Co-financing after the investment; and

• Rented access.

Co-financing is based on long term IRUs (indefeasible rights of use) over a portion of

the relevant lines. In very dense areas where the mutualisation point is at the base of

the building, financing is shared equally amongst participating operators. Elsewhere, in

less dense areas (with a few exceptions), co-financing is available in slices covering 5%

of lines addressable from the mutualisation point.

The precise terms of the network sharing agreements are confidential amongst the

parties. However, the use of IRUs may imply the sale for a fixed up-front fee of a

contractual right of use that may be seen as a capital investment (rather than rental,

which would constitute operational expenditure). IRUs are normally treated as a form of

property right and as such are typically tradable.

In order to foster ‘convergence’ in the approaches taken, ARCEP issued a draft pricing

model for co-investment in less dense areas in May 2014.

It is also important to note that, under separate decisions relating to SMP remedies65,

ARCEP made the pricing of duct access relatively more attractive for fiber use by

allocating the duct costs for fiber (vs copper) on the basis of the relative retail market

share of fiber vs copper customers. During the initial period, while fiber take-up is low,

this would result in relatively low duct access charges for operators investing in fiber.

These charges would increase as the market matures and fiber take-up increases.

ARCEP also progressively increased the lifetime for ducts from 40 to 50 years, whilst

reducing the lifetime for copper from 25 to 13 years on the expectation of a transition to

modern technologies.

6.2.3.3 Outcomes of duct access and FTTP sharing in the French market

At the end of first quarter 2014, 11.4 mio. French households had access to

technologies allowing 30Mbit/s or more, of which 3.154 mio. had access to FTTH

64 ARECP decisions no. 2009-1106 and no. 2010-1312.

65 ARCEP 2010 Decision concerning duct access pricing (http://www.arcep.fr/index.php?id=8571&L=1&tx_gsactualite_pi1%5Buid%5D=1331&tx_gsactualite_pi1%5BbackID%5D=1&cHash=30fb7a7d5e ). See also ARCEP Decision 2012-2007.


technology (12.5% of all households), the majority in dense areas. Within these

households, ARCEP figures show that more than half had access to more than two fiber

offers on the basis of FTTP network sharing and around one quarter had access to 3 or

more FTTH offers.

Figure 17: Number of operators present via an FTTH sharing offer in France

Source: ARCEP Wholesale Broadband Observatory Q1 2014 (published May 2014)

When considering that cable is also present in many of the dense areas in which FTTH

has been installed, it seems probable that many if not most of those served by FTTH

have a choice of at least two providers of fast broadband and in many cases three or

more.

This seems to be a positive outcome for the degree of choice available via

infrastructure-based competition in fast broadband. However, there are some important

caveats:

• The overall deployment of FTTH in France remains relatively limited and is

confined mostly to dense urban areas.

• Choice in FTTH is mostly present in dense areas where multiple operators have

rolled out parallel fiber to apartment buildings and offices – the shared portion of

the network in these areas is confined to in-building wiring.

• The presence of cost-effective sewer access in Paris may have contributed to

competitive developments in this area rather than the co-investment regime per

se (although the rule to share in-building wiring remains important in this

context). That said, data from ARCEP suggests that sharing in less dense areas

is expanding.

• The degree of choice in FTTH going forward may, in absence of remedies

relating to this, be affected by the expected merger of cable operator

Numericable with FTTH/mobile provider SFR, as the merged entity is likely to

have overlapping fast networks in some areas.


• There is relatively limited service-based choice on fast broadband networks.

This may be affected by the lack of regulated access to fiber bitstream in

France.

Although progress has been made with FTTH roll-out in France, take-up of FTTH (and

fast broadband generally) has thus far been limited. At the end of March, there were 2.2

mio. very high-speed broadband subscriptions in France out of a total of 25.2 mio.

broadband subscribers overall. Of these, 0.64 mio. (29%) were based on end-to-end

fiber, with the remainder of high speed lines primarily served by or via the cable

operator Numericable. This means that only 20% of households served with FTTH were

subscribing as of March 2014. However, although overall FTTH subscriptions were

relatively low, the numbers represent an increase of around 70% on the previous year.

In contrast fast cable subscriptions were slowing with a growth of around 18% on the

previous year.

Figure 18: Number of subscriptions in France for broadband and fast

broadband

Source: ARCEP Retail Broadband Observatory, May 2014


Symmetric fiber terminating segment sharing (over and beyond the sharing of in-

building wiring) is typically most relevant where the following conditions are met:

1. FTTH has not yet been deployed or there are substantial areas where it is

commercially viable, but is not yet deployed.

2. There are multiple operators with an interest in nationwide service coverage

engaging or wishing to engage in the deployment of FTTH access networks.

3. Economics of network deployment mean that it would not be viable to deploy

fiber terminating segments in parallel. This may particularly be the case in the


absence of effective duct access and in lower density areas characterized by

single houses or smaller apartments rather than large apartment buildings and

offices.

Some of these conditions seem to be met in the Danish context:

• The absence of available ducts for the copper and coax access networks

combined with relatively low population densities66 mean that it is unlikely that

duplication of fiber access networks would be viable (with some potential

exceptions for high-value customers). Competition on FTTH, should that be

considered necessary, is therefore likely to require some form of network

sharing or access.

• There is at least one operator - TDC - which might have an interest in

broadening its fiber service offering thereby potentially providing a retail

competitor to existing fiber utilities

However, there are a number of factors which may make symmetric regulation of the

terminating segment less relevant in a Danish context:

• FTTH has already been deployed to significant parts of Denmark – Point Topic

suggests coverage of more than 40%, although this includes homes passed,

which do not have a drop wire connection. This means that the scope for

stimulating a ‘first mover’ race may be less pronounced than in countries where

FTTH was limited at the time of its introduction. In order to assess what potential

additional benefits could be gained from incentivizing first-mover investment in

FTTH, it could be useful to assess what proportion of Denmark would be viable

for the commercial deployment of FTTH, beyond currently served areas.

• There is likely to be an absence of demand from competing operators:

o Members of Waoo! are mostly small scale and do not actively compete

with each other at the retail level. Indeed Waoo! was established as a

common brand to present offerings of multiple companies as being

complementary rather than competing.

o SE, which operates a fiber network in southern Jutland and which

recently acquired cable operator Stofa, may not see overall benefits from

such a scheme if it entails opening its proprietary network to others.

o Because installing fiber to connect to the fiber terminating segment

requires substantial investments, it seems unlikely that current access-

based operators in Denmark would be attracted by such a regime. This

still leaves the potential for an entrant to adopt this strategy, but without

66 OECD 2008 dataset on metropolitan areas cites Copenhagen as having a population density of 480 persons per square km compared with 960 in Paris.


existing scale through a relatively high broadband market share, it is

doubtful that such a strategy would be viable.

• TDC could benefit from such a scheme, but this may reduce rather than

increase infrastructure-based competition, as TDC could transfer its focus from

existing copper and coax towards fiber access on current competitors. At the

same time, it is not clear whether such a scheme would change TDC’s

incentives as regards utilizing and/or expanding the fiber networks it acquired

from DONG Energy and ComX, especially if others do not demand co-

investment on such networks under a symmetric framework.

If this analysis is correct, regulation of fiber terminating segment access may actually

weaken competition and reduce incentives for TDC to invest in upgrading its existing

coax and/or copper networks in areas served by fiber utilities.

However, the effects and thereby potential relevance of this remedy could change if:

• It is found that there is significant additional scope for viable FTTH roll-out which

could be supported by measures which aim to foster co-investment; and/or

• Players other than TDC including one or more of the fiber utilities themselves

express an interest in co-investing under this model.

We understand that in Denmark, the responsibility for applying article 12(3) of the EU

Framework Directive for electronic communications rests not with DBA, but rather with

the the Danish Building and Preservation Authorites.67 Moreover, under the existing

transposition of the EU Directives into Danish law, their power is restricted to mandating

the sharing only of in-building wiring, and not wiring up to the first concentration point68.

In order to cater for a scenario in which there is sufficient demand for co-investment on

fiber to consider symmetric obligations in this context, it may be useful to consider

consolidating the powers for implementing symmetric measures under article 12(3) with

the DBA and extending them so as to enable sharing up to the first concentration point.

This would be consistent with the potential for these measures (which are essentially

economic in nature) to affect competition in the sector. In practice this could perhaps be

done in the context of transposing the EU Infrastructure Directive, which includes a

more limited variant of the symmetrical obligation covering sharing of in-building

wiring69.

67 Executive Order no 384 of 21 April 2011

68 Executive Order no. 384 of 21 Apr 2011 on Co-ordinated Use of Network Elements in Electronic Communications Networks and Associated Facilities and Wiring inside buildings Chapter 4(8)

69 Article 9 EU Directive on Measures to Reduce the Cost of Deploying High-speed Electronic Communications.


6.3 Access to fiber networks of utilities (option 3)


Utilities, in principle, could offer commercial access to their fiber networks. By

commercial access is meant the provision of access on freely negotiated terms,

conditions and charges to preferred access seekers. We do not address here regulated

open access to fiber networks, which is not an option under the current legal framework.

Regulated access would require that utilities have a position of SMP (which is unlikely

to be the case even if regional markets, rather than a national market, were defined) or

a symmetrical regime is implemented (which is only possible for fiber terminating

segments subject to certain legal amendments - this was dealt with in section 6.2).

Commercial access could, in principle, take several forms:

• A resale offer for the utilities’ broadband services, stand alone or bundled with

the utilities’ television and voice services;

• A bitstream access offer, possibly with multicasting functionality to allow the

provision of television; and/or

• Access to unbundled fiber (where point to point architecture is used).

In contrast to the other options identified in this report, there is little experience in

Europe on commercial access to alternative operators’ fiber networks. In fact, relevant

experience seems to be limited to Denmark itself, where during a brief period fiber

utilities offered network access to other operators. We have further considered this

option, because of some potentially positive effects on competition.

6.3.2 Pros and cons

Commercial access to fiber companies’ networks can have advantages from a

competition point of view. Put in general terms, access arrangements can strengthen

competitors of the incumbent in the market for retail broadband, in particular, if access

partners are allowed to offer bundles including television. Such access could benefit

resellers (operators with no broadband infrastructure) or network operators (with no

local access infrastructure in the relevant geographical area). An increase of access-

based competition made possible by fiber access could also provide a competitive

stimulus for the incumbent to geographically expand its own geographical fiber footprint

and improve its fiber-based products. More competition could ultimately lead to a higher

penetration with connections of very high and symmetrical speeds. Such an outcome

would promote the policy objective of each home having access to a

100Mbps/download and 30Mbps/upload connection.

However, there are also potential disadvantages that could arise from access to fiber

networks. If fiber companies entered into an access arrangement with the incumbent,

the impact on competition could be negative. Such agreements could undermine


existing infrastructure competition between DSL/cable and fiber. Access arrangements

between the fiber companies and the incumbent would be subject to Competition Law

scrutiny. Whether they are approvable, would depend on the concrete terms of the

agreement.


There is very little evidence in the EU on fiber companies offering commercial access

and its impact on competition. Fiber companies (other than the incumbents which are

subject to SMP obligations) usually keep their networks closed, presumably because

they do not expect access relationships to enhance profits at this stage of market

development. In fact, one of the few experiences with commercial access is from

Denmark, where utilities at the early stages briefly offered network access to other

operators.

Existing access arrangements in Europa, where they exist, are based on symmetrical

regulation or state aid rules:

• Access to fiber terminating segments, e.g. in France, Portugal and Spain, is

based on a symmetric regime.70

• Other access arrangements, to the extent they exist in Europe, are based on

state aid rules. Para. (23) of the EU State Aid Guidelines71 stipulates that “.. a

publicly funded network set up within the context of an SGEI72 should be

available to all interested operators. Accordingly, the recognition of an SGEI

mission for broadband deployment should be based on the provision of a

passive, neutral and open infrastructure. Such a network should provide access

seekers with all possible forms of network access and allow effective

competition at the retail level, ensuring the provision of competitive and

affordable services to end-users.” Para. 80(a) sets out that wholesale access

must be offered to subsidized networks in all relevant forms. Apart from

bitstream access and unbundled access to the local loop and sub-loop, the

access obligation should also include the right to use ducts and poles, dark fiber

or street cabinets.

70 See section 6.2.3.

71 See Communication from the Commission, EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks (2013/C 25/01). (http://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CC0QFjAB&url=http%3A%2F%2Fec.europa.eu%2Fcompetition%2Fstate_aid%2Flegislation%2Fbroadband_guidelines_en.pdf&ei=JCrJU7OvNIe7Oab9gKgG&usg=AFQjCNExSIE84RXv_gXOljz-lMq-GnAByQ&bvm=bv.71198958,d.ZWU&cad=rja )

72 SGEI: Service of general economic interest.



Commercial access agreements of fiber utilities with other network operators or

resellers are a possibility in the Danish context. However, fiber utilities would need to

have a commercial incentive to enter into such access arrangements. The answer to

this question is not obvious at the current stage of market development.

• While access arrangements can help to expand the broadband market for

utilities and increase network utilization (which increases the utilities’ profits),

there is also a cannibalization effect (which can decrease profits depending on

the level of the access charge). The expansion effect, which would provide the

prime incentive for entering into access agreements, is heavily dependent on

consumers’ demand and willingness to pay for very high-speed symmetrical

broadband. Given the uncertainty about demand, utilities may feel that time is

not yet ripe to enter into access arrangements.

• In addition, utilities under the Waoo! brand may face the challenge of

harmonizing access products between fiber utilities and establishing a common

wholesale platform (a form of “Waoo! wholesale”).

Commercial access arrangements, if they were concluded, could increase competition

in the Danish broadband market. This clearly would be the case if alternative operators

(e.g. Telenor, Telia and Concepy) or resellers could benefit from them. In turn, an

access arrangement between fiber utilities and TDC could reduce infrastructure

competition. Access arrangements with TDC would need to be scrutinized under Article

6 of the Danish Competition Act and cleared by the Danish Competition Authority. The

outcome would depend on the details of the arrangement and cannot be predicted here

on a general level.

6.4 Functional separation of TDC (option 4)


A further option is functional separation of the local access network of TDC and related

wholesale services. While we address this option only in form of a voluntary separation,

it is nevertheless instructive to summarize the conditions under which mandatory

separation may be imposed under the SMP framework. The defining characteristics are

also identical, independent of whether functional separation is voluntary or mandated.

In the revised Electronic Communications Framework of 2009, a new provision was

added enabling NRAs in some circumstances to impose mandatory functional


separation on operators with enduring market power. Article 13a of the Access

Directive73 provides that:

“Where the national regulatory authority concludes that the appropriate

obligations imposed under Articles 9 to 13 have failed to achieve effective

competition and that there are important and persisting competition problems

and/or market failures identified in relation to the wholesale provision of certain

access product markets, it may, as an exceptional measure … impose an

obligation on vertically integrated undertakings to place activities related to the

wholesale provision of relevant access products in an independently operating

business entity. That business entity shall supply access products and services

to all undertakings, including to other business entities within the parent

company, on the same timescales, terms and conditions, including those relating

to price and service levels and by means of the same systems and processes.”

In effect, functional separation as defined in EU law, provides for:

(i) An organisational separation of the part of the business which is subject to

enduring bottlenecks; and

(ii) ‘Equivalence of Input’ (EoI) (i.e. use of the same systems as well as terms

and conditions) for products internally and externally offered by the

functionally separated business unit.

It should be noted in this context that, even in the absence of functional separation, EoI

may in principle be mandated as an application of the standard obligation for ‘non-

discrimination’, as outlined in Article 10 of the Access Directive. EoI has indeed been

advocated as a suitable mechanism for implementing non-discrimination in the context

of the 2013 Commission Recommendation on cost methodologies and non-

discrimination74. This means that the only distinguishing feature of functional separation

from the standard remedy toolkit is the organisational separation of the entity and

associated changes in governance.

The evidential requirements needed to justify mandated functional separation are

relatively strong. Prime amongst these are:

(i) Evidence that other access obligations such as non-discrimination

obligations applied under the EU framework have failed to achieve effective

competition.

73 Directive 2002/19/EC as amended by Directive 2009/140/EC.

74 Commission Recommendation of September 2013 on consistent non-discrimination and costing methodologies (http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2013/c_2013_5761_en.pdf ).


(ii) Reasoned assessment that there is little or no prospect of effective and

sustainable infrastructure-based competition within a reasonable timeframe;

and

(iii) Analysis justifying that the obligation would be the most efficient means to

enforce remedies aimed at addressing the competition problems identified.

An important practical issue concerning the application of functional separation is the

choice of which assets to place within the separated business unit or entity. This

decision should in principle be guided by where the enduring economic bottleneck is

perceived to lie, and will affect the wholesale products supplied by the separated unit. If

there is a ‘soft’ separation (ie only business organization) as in the UK, amending the

boundary of the separated unit may be more straightforward than if a separate legal

entity is established.

The Access Directive also contains provisions detailing the implications of voluntary

separation on the approach towards access regulation. Article 13b of the Access

Directive provides that:

“Undertakings which have been designated as having significant market power

… shall inform the NRA in advance ... in order to allow the NRA to assess the

effect of the intended transaction, when they intend to transfer their local access

network assets or a substantial part thereof to a separate legal entity under

different ownership, or to establish a separate business entity, in order to

provide to all retail providers, including its own retail divisions, fully equivalent

access products.”

The Directive requires NRAs to conduct a co-ordinated analysis of different markets

related to the access network and maintain, remove or change obligations in effect

taking into account the impact of any voluntary separation. The implication may be that

if separation strengthens the effectiveness of regulatory conditions surrounding core

bottlenecks, it might foster competition, thereby enabling some deregulation of

downstream markets.

Voluntary functional separation has occurred in the UK and Sweden. As the experience

notably in the UK has been positive in terms of improving access conditions and

stimulating access-based competition, we assess this option in more detail here.

6.4.2 Pros and cons

Functional separation has the benefit of providing a clear structure under which

regulated access products are provided. If governance structures are effective, it could

also be helpful in changing the incentives of the wholesale division of the SMP operator

to foster more equal treatment of service providers. The main disadvantages relate to

the set-up costs both of the NRA and regulated operator, and questions over whether

the benefits of changed governance structures of themselves (versus measures such

as EoI) are sufficient to outweigh these costs. While functional separation (and EoI)


may improve enforcement of non-price discrimination, there are questions over whether

functional separation of itself is sufficient to address ‘price discrimination’ (i.e. margin

squeeze). In addition, there is speculation that establishing a structure which aims to

offer access to ‘enduring bottlenecks’ may prove to be a self-fulfilling prophecy,

potentially encouraging a longer-term reliance on access rather than infrastructure-

based competition.

In summary, potential advantages include:

• Clear structure for the enforcement of ex ante regulation.

• Potential to change incentives of the SMP operator towards equal treatment.

• Strong enforcement of (non-price) non-discrimination potentially boosting

competition in downstream wholesale and retail markets (although this could

also be done to some degree through EoI obligations in the absence of

functional separation).

• Structure inherently supports equivalent availability and access to new and

upgraded access products (e.g. NGA) if the separated unit includes fiber as well

as copper assets in the access network.

• Consequent increases in competition may permit some (potentially geographic)

deregulation of downstream markets (e.g. wholesale broadband access)

• Structural improvements which enforce non-discrimination could also reduce the

burden of regulatory oversight and enforcement for non-discrimination after the

initial set-up period.

• The separation may reduce incentives for the SMP operator to consider only the

needs of its downstream operation as regards network upgrades for different

infrastructures (e.g. DOCSIS3 and FTTx) because in principle product

enhancement requests from all retail providers would need to be treated in an

equivalent manner. However, this advantage would not apply if the retail market

share of the SMP operator is substantially higher than those of other players.

Potential disadvantages include:

• High regulatory costs in establishing the new regime.

• Potentially high costs for the affected operator. It would need to be assessed

whether these are outweighed by the competitive benefits and potential future

cost reductions due to structurally improved enforcement.

• Functional separation does not preclude margin squeezes or potential excessive

pricing and therefore does not obviate the need to maintain existing price control

and/or margin squeeze obligations.

• Creates (at least perceived) bias towards ongoing service competition. May

affect incentives towards infrastructure-based competition (where viable).

• Unlike measures such as network sharing or infrastructure access cost

reductions, functional separation does not address underlying issue of economic

bottlenecks caused by high sunk costs and economies of scale. It is therefore

likely to embed regulation long term.


• May address symptoms, but not the root cause of competition problems

stemming from ownership of parallel infrastructures.


6.4.3.1 UK

In 2005, the incumbent BT made commitments to Ofcom for the functional separation of

its regulated access business (the ‘Undertakings’75).

Scope of the separated unit

The Undertakings set out the assets which are held (in virtual terms) by BT Openreach.

The relevant provisions state that: “Except as otherwise agreed with Ofcom, Openreach

shall control and operate the assets contains within the Physical Layer of BT’s Access

Network and the Physical Layer of BT’s Backhaul network including such items needed

to support these assets, such as line testing and remote diagnostics.” The Physical

Layer is defined as the “duct, fiber, copper and other non-electronic assets in an

Electronic Communications Network”.

In practice, the main product supplied via Openreach is LLU – i.e. physical access to

copper access. Since the introduction of an access obligation for ducts for residential

purposes, duct access has also been made available by Openreach.

For FTTC and FTTP products, the Undertakings noted that there may be some need for

Openreach to have access to the Transmission Layer of the network. In addition,

commitments were made that Openreach should follow an EoI approach to such

products including as regards consultation, pre-launch notification and SLAs76. In June

2009, Ofcom agreed, following consultation, to a variation in BT’s Undertakings77 which

allows Openreach to control and operate the access electronics required for FTTC.

Ethernet leased lines, Optical Spectrum Access78 and Wholesale Line Rental (WLR)

are also offered via Openreach.

Other regulated and unregulated wholesale products including bitstream are offered

through a division downstream of Openreach called BT Wholesale79. In principle, BT

75 Consolidated BT Undertakings (http://stakeholders.ofcom.org.uk/binaries/telecoms/policy/bt/consolidated.pdf ).

76 See section 11 of the Undertakings.

77 Ofcom variation to BT’s undertakings relating to FTTC (http://stakeholders.ofcom.org.uk/consultations/fttc/statement/ ).

78 High speed lines using DWDM technology.

79 BT Wholesale (https://www.btwholesale.com/pages/static/homepage/index.htm ).


Wholesale uses Openreach products in order to build services with additional

components or service offerings.

Main features of functional separation in the UK

The main features of the separation regime in the UK are:

• The provision of services on the basis of ‘Equivalence of Input’. Unless

permitted otherwise, regulated services supplied by Openreach must be

provided and maintained using the same systems to other operators as to BT’s

downstream businesses.

• The separation of governance of the regulated access business. Although it

remains part of the same legal entity as the remainder of BT, Openreach is

operated as a separate business unit, with its own staff and headquarters. The

incentive schemes of Openreach staff are based on Openreach’s performance

rather than that of the wider group.

• The creation of an ‘Equality of Access Board’ (EAB)80, which oversees the

implementation of BT’s Commitments. The EAB is chaired by a member of BT’s

Board, and includes an operational manager from within BT. However, the

remaining three members of the Board, making up the majority, are

independent. The main role of the Board is to monitor, report and advise BT on

its compliance with the Undertakings, with a particular focus on the application

of the principle of the ‘Equivalence of Inputs’ and operation of Openreach.

Amongst other duties, the EAB acts as on complaints brought to it by

communications service providers, and produce an annual report81 which

highlights how breaches have been rectified. In this sense it provides an internal

‘appeal’ mechanism by which providers can seek redress against perceived

discrimination by BT.

Structure of BT

Openreach operates as a standalone profit and loss division of BT Group. Its CEO is

selected by and reports to the BT Group CEO. However, its independence from other

BT divisions is reinforced by the approach regarding incentivisation of its staff and by

the Equality of Access Board (EAB), which reports on performance against the

Undertakings and can assess potential breaches. It is independent of the BT Board.

80 Openreach Equality of Access Board (http://www.btplc.com/Thegroup/Ourcompany/Theboard/Boardcommittees/EqualityofAccessBoard/EqualityofAccessBoard.htm )

81 EAB Annual Report 2014 (http://www.btplc.com/Thegroup/Ourcompany/Theboard/Boardcommittees/EqualityofAccessBoard/Publications/EAB_Annual_Report_2014.pd f)


Moreover, another distinction is that the Openreach CEO is not permitted to be a

member of (although can attend) the Operating committee of BT Group, which is

Chaired by the BT CEO and is the main decision-making body.

Figure 19: Structure of functional separation of BT

Source: BEREC Guidance on functional separation – Annex I Feb 2011 (http://www.irg.eu/streaming/BoR%20(10)%2044%20Rev1b%20BEREC%20Guidance_on_FS_Annex_final.pdf?contentId=547128&field=ATTACHED_FILE )

Legal basis for BT’s functional separation

BT’s undertakings were implemented before (and in some respects provided an

inspiration for) the provisions later adopted in the revised EU Framework on Electronic

Communications, which allow NRAs to mandate functional separation in certain

circumstances. In this context they were not implemented under ex ante legislation

applying to the electronic communications sector.

Rather the BT Undertakings were agreed between BT and Ofcom under competition

law in lieu of a reference to the UK Competition Authority, then known as the

‘Competition Commission’82, which could have imposed the structural separation of BT.

This means that although the commitments were voluntarily entered into, they arose as

a result of a strong (and presumably credible) regulatory threat. Ofcom was able to

make this reference and agree to the Undertakings by virtue of the fact that under UK

law, it has concurrent powers in the telecommunications sector with the competition

authority under competition law.

82 Competition Commission (https://www.gov.uk/government/organisations/competition-commission). Its functions have now been transferred to the UK Competition and Markets Authority (“CMA”)


Aims of functional separation in the UK

According to Ofcom, the main aim of functional separation in the UK was to address

perceived discrimination between BT’s retail divisions and those of alternative operators

for ‘non-price’ terms – such as the conditions for ordering regulated access products as

well as subsequent service levels (fault repair etc). Another important objective was to

secure equivalent access to new products such that BT’s downstream businesses

would have the same information at the same time about new wholesale products as

other operators, thereby providing some safeguards against foreclosure.

A key goal at the time when functional separation was introduced was to support

competition in broadband on the basis of local loop unbundling, which had experienced

relatively low take-up following its introduction. However, the BT Undertakings were

designed in a way that captured other regulated products including business access

products such as ‘Ethernet leased lines’ (although these were exempted from EoI

obligations). Although NGA deployments were yet not anticipated in 2005, the

Undertakings were intended to be forward-looking and therefore encompass any

upgrades to the access network such as the deployment of next generation fiber access

networks closer to the customer.

Other actions by Ofcom to boost competition

Although it is perhaps the best-known of recent developments in the UK that were

intended to promote competition, functional separation was not the only action that was

taken around 2005. Ofcom also undertook a significant review of the valuation of BT’s

copper access network which was finalized in August 200583. This resulted in a change

in the approach to valuing assets, including ducts and copper, installed prior to 1997

and led to price reductions for LLU line rental of around 25% as shown in Fejl!

Henvisningskilde ikke fundet.Table 11.

Table 11: UK LLU prices before and after the copper cost review (€)

August 2004 October 2005

Full LLU Connection 129.00 51.00

Monthly Rental 12.90 9.80

Shared LLU Connection 123.00 51.00

Monthly Rental 3.30 1.90

Source: European Commission (2006)

83 Ofcom, Valuing BT’s copper access network: final statement (http://stakeholders.ofcom.org.uk/consultations/copper/value2/statement/ )


In addition, Ofcom established the Office of the Telecommunications Adjudicator

(OTA)84, a body staffed by operational experts with experience from the

telecommunications industry, which was tasked with assessing and resolving issues

affecting the roll-out and performance of products provided by Openreach. Amongst

other tasks, the OTA regularly publishes Key Performance Indicators (KPIs) which

provide metrics on provisioning and repair times by Openreach in providing services to

competitors as compared with its own downstream business units. The OTA also

assists operators in reaching agreement on product functionality, process

specifications, change management and implementation of products, and can issue

non-binding recommendations if needed, on these subjects. It thus operates as a kind

of arbitration body.

Effects of functional separation in the UK

As can be seen in Figure 20, take-up of LLU increased rapidly in the period following

the introduction of functional separation. Although take-up has slowed in more recent

years, the OTA reports that there were 9.3 mio. LLU lines at the end of June 201485,

around 40% of all broadband lines in the UK86.

Figure 20: Installed base LLU in the UK

Source: Office of the Telecommunications Adjudicator, WIK

84 Office of the Telecommunications Adjudicator (http://www.offta.org.uk/index.htm)

85 OTA KPIs June 2014

86 Ofcom quarterly update Q4 2013/14 reports that there were 22.6m broadband lines as of end March 2014.


As a consequence of the success of LLU and the pre-existing competition from cable in

the UK, Ofcom was also able to further deregulate the downstream wholesale

broadband access market, withdrawing regulation from 90% of this market in its June

2014 decision on this market87, a deregulatory measure which should have reduced the

cost burden of regulation. The practical effects thus appear to have been significant and

positive.

However, because functional separation was introduced in tandem with two other

important measures affecting LLU - price reductions in LLU and the establishment of

the OTA - it is difficult to determine where responsibility lies for the improved outcomes

for LLU and the relative effect of addressing price vs non-price issues. Moreover, it is

even harder to assess the role that the organisational separation (and consequent

changed incentives) played in delivering positive outcomes as compared with the

application of Equivalence of Input, which could have been introduced separately from

functional separation.

When examining the effects of functional separation on competition in NGA roll-out and

competition in the UK, the results are not clear-cut. BT has rolled out FTTx (primarily

FTTC) to around two-thirds of the UK population – ahead of schedule88. This suggests

that functional separation was not a deterrent to investment. The UK was also one of

the first countries to introduce VULA. This may have resulted from the structural set-up

of BT, whereby BT’s retail arm could not market superfast broadband without an

equivalent wholesale product being made available to all operators. However,

compared with standard LLU-based broadband, BT retail arm has maintained a higher

market share for superfast broadband than its competitors on the Openreach VULA

platform. As of March 2014, out of a total of 6.1 m. superfast broadband connections,

BT retail maintained 34% vs entrants’ 10% share of the total high speed broadband

connections, and 78% share of FTTx connections (see Figure 21).

87 Ofcom, 26 June 2014 Statement on the wholesale broadband access market (http://stakeholders.ofcom.org.uk/binaries/consultations/review-wba-markets/statement/WBA-Statement.pdf )

88 See BT investor news release Q4 2013/2014.


Figure 21: UK market shares in superfast broadband (>25Mbit/s) March 2014

Source: BT and Virgin Media investor statements

The reasons for this are unclear, and may not be entirely due to regulatory factors.

However, it is possible that the sole reliance on functional separation to support

competition may have been insufficient. In June 2014, Ofcom issued a consultation in

which it proposes to introduce ex ante margin squeeze testing on fiber-based

broadband89. Ofcom’s plans to apply checks on pricing suggest that pricing may play a

significant role as regards competition in NGA services and that pricing safeguards may

be needed in addition to functional separation. This is consistent with the 2013

European Commission Recommendation on cost methodologies and non-

discrimination90, which calls for measures to preserve economic replicability alongside

those to ensure technical replicability and avoid non-price discrimination.

Costs of functional separation

It is difficult to quantify the precise costs to the incumbent of establishing functional

separation, largely because some of the costs incurred may have been incurred through

normal business procedures in the absence of functional separation. For example:

• Establishing a new business division is likely to have incurred costs. However,

such costs may have been incurred during normal business reorganisation

processes.

89 June 2014 Ofcom consultation on Fixed access market reviews: approach to the VULA margin (http://stakeholders.ofcom.org.uk/consultations/VULA-margin/ )

90 Commission Recommendation of September 2013 on consistent non-discrimination and costing methodologies (http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2013/c_2013_5761_en.pdf )


• Establishing ordering systems to comply with a requirement for ‘Equivalence of

Input’ would normally incur costs. However, system costs would also be incurred

in the normal course of introducing new products, such as was the case for the

introduction of VULA products based on FTTx.

• The establishment and maintenance of the ‘Equivalence of Access Board’ would

entail both start-up and ongoing costs. However, it is likely that costs associated

with the function of enforcing regulatory obligations for non-discrimination would

have been incurred regardless of the existence of the EAB and functional

separation. In the absence of the EAB, such costs would have been borne

largely by the regulator and recovered from industry.

In conclusion, although there were undoubtedly direct costs associated with the

establishment of functional separation in the UK, it is not possible to quantify these with

any accuracy. In a 2009 study prepared for BT Global Services (one of BT’s retail

divisions) by SPC Network91, these direct costs were not viewed to be disproportionate.

It is also possible that changes to the incentives of the regulated access business could

reduce the need for and costs of ongoing enforcement, although again the effects are

difficult to quantify.

Effects of functional separation on infrastructure-based competition in the UK

Data on roll-out of FTTx suggests that functional separation has not impacted incentives

by BT to invest in the technology. However, it is notable that to date alternative

operators (besides the cable operator) have played a less extensive role in deploying

their own access infrastructure in the UK than in many other countries – notably France,

Spain, Portugal and Italy.

There could be many reasons for this. The presence of cable as an independent

competitor reduces the business case to install a third access infrastructure. Conversely

to the UK, regulatory approaches in France, Spain and Portugal, which have focused on

deep passive access for NGA instead of downstream active access, may have

compelled increased investments by alternative operators.

However, it is also possible that functional separation may have created the perception

in the UK that regulated access would be provided on an ongoing basis, which is less

certain in countries without such a regime. This may have the positive effect of

providing increased certainty for access-based entrants to invest in their own core

network infrastructure. However, it may also have had the effect of making the case for

infrastructure competition in the access network relatively less compelling or urgent for

UK-based competitors. This could have negative effects in the medium term if there is

indeed a business case for infrastructure-based access investment or network.

91 SPC network report on functional separation for BT Global Services (http://spcnetwork.eu/uploads/20090226_EFS_Report.pdf )


6.4.3.2 Sweden

Another case of separation that is sometimes cited is that of TeliaSonera in Sweden.

The background is that in 2007, in the light of complaints to the Competition Authority

and perceived problems with discrimination in the regulation of markets relevant for the

provision of broadband services, Swedish NRA PTS was tasked by the Government to

conduct an assessment of the electronic communications sector to improve

transparency and equal treatment. Following PTS’ investigation and the publication of

its report in June 200792, the Government adopted legislation in July 2008 that gave the

power to PTS to mandate functional separation. However, the legislation was limited in

scope to copper access in the context of markets 4 (wholesale physical infrastructure

access) and 5 (wholesale broadband access) of the 2007 EU Recommendation of

Relevant markets.

Meanwhile prior to the adoption of the legislation, TeliaSonera made proposals for

separation which included the creation of a separate legal entity for the management of

physical infrastructure with the stated intention of selling copper and copper-related

infrastructure on the same commercial terms to all operators on the Swedish market93.

Skanova was established on 1 January 2008. An Equality of Access Board was also

established to monitor key performance indicators for the separated unit.

Although the separation in Sweden shares some characteristics with functional

separation as defined in the EU Framework Directive as amended in 2009, it deviates in

certain important respects. In particular, it did not entail Equivalence of Input in terms of

the strict use of the same operational systems. In addition selection of the members of

the Equality of Access Board is performed by TeliaSonera.

As the separation of TeliaSonera has not been formally acknowledged as functional

separation within the meaning of EU legislation, it is difficult to assess what the practical

effects of this voluntary regime have been over and beyond the effects of SMP

regulation applied by PTS.


There is no experience within Europe of functional separation being introduced by

means of mandatory obligations under the EU Framework for electronic

communications. Rather, in all cases where the incumbent has executed organizational

change (whether or not considered ‘functional separation’) in order to address

perceptions of discrimination, this has occurred through voluntary measures, taken in

92 PTS report: Improved broadband competition through functional separation June 2007 (http://www.pts.se/upload/Documents/EN/Improved_broadband_competition_through_functional_separation_2007_18.pdf )

93 TeliaSonera press release (http://news.cision.com/teliasonera/r/skanova-access-meets-swedish-telecom-operators--infrastructure-needs-on-equal-terms,c322057 )


lieu of more stringent measures that might have been applied by the NRA and/or

competition authority.

An important first observation is therefore that the relevance of voluntary functional

separation in Denmark depends not only on whether functional separation would help to

address structural competition issues in the Danish market (i.e. does it address the right

problem? Is it the right solution?), but also on the strength of any case to take more

stringent (mandatory) measures, the intentions of the regulatory authorities (is the threat

credible?) and TDC’s receptiveness to organizational change.

Would functional separation pass a cost benefit analysis?

When assessing the relevance of voluntary functional separation in a Danish context, it

is useful to review the criteria set out in EU legislation for mandatory separation as

these provide useful guidelines for the conduct of a ‘cost benefit analysis’.

Under the terms of the EU Telecommunications Framework as amended in 200994,

functional separation may be mandated in circumstances in which other remedies have

been tried and been found insufficient to address competition problems, where there is

little or no prospect of infrastructure-based competition and where functional separation

would be the most efficient solution.

There are certain characteristics of the Danish telecommunications market which might

support a case for functional separation.

• The integration of TDC, and its ownership of copper, coax, and in some areas

fiber networks may mean that infrastructure-based competition in residential

services is likely to remain limited and where present only consists of a choice of

two infrastructures (TDC and fiber utility), which would fall short of a competitive

market. This is confirmed by the analysis of coverage of relevant technologies in

section 2.4.

• Data (see section 2.2) suggests that despite being mandated on non-

discriminatory terms at a price which up to 2012 was close to the EU average,

copper LLU has not been effective in Denmark to the same extent as in other

countries. One possible reason (at least where there is a sufficiently long history

to reach conclusions) could be that SMP remedies alone were insufficient to

achieve effective competition in retail markets.

• There are some indications that TDC’s choices as regards priorities for network

upgrades between the cable and copper platform are based on the needs of its

downstream retail broadband businesses rather than of the demands of the

market as a whole. In theory if such decisions are taken primarily by the access

unit on the basis of aggregate demand, it could render investment choices more

94 Directive 2002/19/EC as amended by Directive 2009/140/EC


operator neutral. However, in practice the high retail market shares of TDC in

comparison to alternative operators are likely to render this ineffectual.

• We understand that effective access regulation, the main goal of applying

functional separation, is likely to remain relevant in the medium term to support

competition in Denmark. Beyond the important investments made by fiber

utilities and by operators focused on the business segment, it seems unlikely

that other players would invest in parallel access infrastructure, and therefore

will be reliant on access to serve fixed retail customers.

At the same time, there are characteristics which may militate against the use of

functional separation at this time.

• The majority of operators relying on regulated access have cited price,

(excessive charges and/or margin squeeze) rather than non-price factors as the

main reasons for the low usage of access. Price issues, if these are responsible

for competitive challenges in the Danish market, are unlikely to be addressed

through functional separation, but rather through attention to the effectiveness of

price setting methodologies and margin squeeze tests.

• There seem to be additional measures that could in theory be taken to enforce

non-discrimination within the scope of SMP regulation, which fall short of

functional separation. These are not policy options as such in the context of this

paper, but could be introduced if considered by the DBA to be proportionate and

necessary to address competition issues. Such measures could for example

include:

o Increased obligations around and scrutiny of internal and external KPI

data for TDC as compared with competitors95.

o Establishment of a ‘telecommunications adjudicator’ with responsibility

for monitoring KPIs, reporting on performance and addressing any

perceived shortfalls.

o Mandating equivalence of input for key products, where proportionate.

The British example shows how unbundling and VULA could be handled in a system of

functional separation. However, a further complexity of introducing functional separation

in the Danish context is the presence of cable. In theory cable assets could be included

within a functionally separated unit if they were considered to represent an enduring

bottleneck. However, there may be challenges in determining the nature and type of

cable assets that could be ‘functionally separated’ given that cable access is via layer 3

bitstream, which is inherently a shared connection with connection points that may not

be at the ‘local’ level.

95 Existing KPIs are shown at https://wholesale.tdc.dk/wholesale/om/kpi/Sider/KPI_2014/Ra-kobber-og-Delt-ra-kobber-2014.aspx


There are examples of bitstream including cable bitstream being offered by a separated

entity. Broadband in South Korea was initially deployed via cable technology by the

state-owned companies Powercom and KT, under a regime of mandated structural

separation96. According to research conducted by WIK-Consult in May 2013, the

structurally separated Australian NBN Co was providing layer 2 bitstream services at

121 handover points, which could be considered regional access, while the separated

access provider across a large part of New Zealand – Chorus, was offering layer 2 local

bitstream access, in both cases via FTTx (mainly GPON) technology.

Although theoretically possible, there may be questions over whether cable bitstream

can be considered an enduring bottleneck. Moreover, the discussion flags another

important issue – which is that vertical separation does not solve the root cause of a

significant part of the competition problems in the Danish market, which stem from the

integration of parallel infrastructures within a single company.

In turn, if functional separation were conducted purely on the copper and FTTx platform,

this would not solve the problem of strategic decisions around the upgrade of specific

technologies controlled by TDC (i.e. the possible preferential treatment of cable vs

FTTx), and therefore would also fail to address some of the competition problems

identified..

6.5 Divestiture of cable assets of TDC (option 5)


TDC could divest its cable assets by selling it to another company and focus its

activities on providing services over its copper/DSL and fiber networks.

An alternative to selling TDC’s cable assets to another company would be an IPO

(Initial Public Offering), where the shares of a newly created cable company would be

offered on the stock market.

It should be noted that Denmark is the only remaining EU country where an incumbent

still owns and operates the historical cable network. In other countries, incumbents have

usually divested their cable assets following a government decision and at a time when

governments where still major shareholders. There is, however, also a more recent

case, where Portugal Telecom has divested its cable assets in what could be

considered a voluntary commercial decision. Given that Denmark rests a unique case in

96 For discussion see Ovum Consulting report for the World Bank “Broadband Policy Development in the Republic of Korea”, October 2009.


the EU, we have assessed the option of separating cable from copper/fiber in the

Danish context.

6.5.2 Pros and cons

Divestiture of cable assets could create the following advantages:

• The ownership separation of the copper/fiber and cable assets would improve

infrastructure competition. It would create a new independent competitor in

areas covered by cable. This would intensify competition in terms of network

roll-out, network upgrade, and improvement of quality of service, and increased

choice for customers. More specifically, the incumbent telecoms operator - in

areas covered by cable - would put a higher priority on upgrading its copper

network with VDSL2 vectoring and/or invest in FTTH roll-out.

• Ownership separation may allow deregulation of wholesale central access

(wholesale broadband access as it is called today). This depends, among other

factors, on at least three operators competing against each other. While this is

not the case in rural areas, such an outcome could be relevant in urban areas.

Here the separated cable company would compete with the incumbent telecoms

operator (copper/fiber), access-based operators (i.e. based on wholesale central

access/VULA) and/or an independent fiber operator. Three or more

infrastructure based operators may be enough to deregulate wholesale central

access. In two cases, the European Commission has not objected to regulators

finding effective competition with three infrastructure-based operators.97

• Ownership separation under certain conditions would also be conducive to

access-based competition. As a result of the quicker upgrade of the copper

network with VDSL2 vectoring in cable areas, access-based competitors will be

able to rely to on more performant VULA products in these areas. This will

remove or lesson their competitive disadvantage vis-à-vis cable. This effect

would, however, not emerge if the increase of infrastructure-based competition

led to the deregulation of all wholesale access markets, including the market for

wholesale local access (and VULA products).

Disadvantages of divestiture of cable assets would include the following:

• Divestiture of TDC’s cable assets would create substantial costs related to the

separation of the divested assets; the reorganisation of the incumbent’s

97 In Portugal and the UK, the regulators deregulated the “urban” market for wholesale broadband access based on the incumbent competing with two infrastructure-based operators (e.g. a cable operator and an unbundler). See Case PT/2008/0850: Wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location; Case PT/2008/0851: Wholesale broadband access; Comments pursuant to Article 7(3) of Directive 2002/21/EC. See also Commission Decision concerning Case UK/2014/1606: Wholesale local access market Commission Decision concerning Case UK/2014/1608:. Wholesale broadband access market; Comments pursuant to Article 7(3) of Directive 2002/21/EC.


remaining business, and the sales process. Costs would be even higher in case

of an IPO (Initial Public Offering) for a newly founded cable company.

• Divestiture is difficult to achieve for cable assets of telecom incumbents in which

governments no longer have a majority share or other decisive influence. Private

shareholders only consider divestiture if it increases shareholder value. A

positive macroeconomic effect, i.e. more investment and competition, is not a

private shareholder criterion. On the other hand, if divestiture would justify a

substantial deregulation of wholesale access (perhaps wholesale central access

and wholesale broadband access), then private shareholders should be inclined

to consider more closely the merits of divestiture.

6.5.3 Selected countries experience - Portugal

Portugal provides an interesting case study of a country which saw the dynamics of

competition (and consequently of regulation) change significantly following the

divestiture of the cable operator (now ZON) from the incumbent Portugal Telecom.

The incumbent was initially granted a license to deploy cable networks in 1991. Due to

the integration of the incumbent, relatively stringent SMP access obligations were

imposed on the incumbent. A European Commission report from 2008 records98 that,

following the first round of market reviews after the introduction of the 2002 EU

Framework for electronic communications, the NRA found the incumbent to have SMP

in all but one of the markets it had analysed and imposed a full range of obligations,

including a significant level of retail regulation. Prior to the spin-off of the cable operator,

data from the European Commission suggests that Portugal Telecom had more than

70% share of the broadband market. New entrants relying on regulated access such as

LLU and bitstream by comparison had less than 25% market share. The remainder was

accounted for by an entrant cable operator. The overall structure of the market at this

stage could therefore be said to be similar to that in Denmark.

98 European Commission 13th Progress Report on implementation of the EU framework for electronic communications (COM (2008(153)).


Figure 22: Portugal – broadband lines by technology January 2008

Source: European Commission 13th Implementation Report

In March 2007, a takeover bid launched by an alternative Portuguese operator

(Optimus) for the incumbent and its cable subsidiary failed, because one of the

conditions for the takeover bid was not approved by shareholders. However, the

European Commission reports99 that the incumbent had announced its intention to

divest its 58.4% stake in the cable subsidiary should the takeover bid fail. This spin-off

occurred on 7 November 2007.

As a result, Portugal now benefited from cable competition to a significant portion of

households. The stage was also set for infrastructure competition in the upgrade of

networks towards NGA. By the end of 2012, data from the Digital Agenda Scoreboard,

suggests that 84% of homes had access to networks capable of providing at least

30Mbit/s download speed (compared with an average of 62% across the EU). The

share of subscribers taking connections of at least 30Mbit/s was 41% (double the EU

average), while 100Mbit/s connections accounted for 19% of all subscriptions compared

with 5% across the EU as a whole.

By 2013 the competitive situation and accompanying regulation were radically different

compared with the years prior to divestment. Data supplied to the European

Commission by Cocom suggests that by July 2013 regulated access for basic

broadband of all types had fallen to 7% of broadband access lines, competitive cable

lines represented 39% of broadband lines (roughly equivalent to the previous cable

99 European Commission 13th

Implementation Report


market shares, but now distinct from the incumbent), and 17% of end-to-end lines were

provided by both the incumbent and alternative operators by means of ‘other’

technologies, understood to be mostly fiber. The geographic coverage of NGA networks

achieved by the main operators as of the end of 2013 is shown in Figure 23.

Figure 23: Coverage of NGA networks in Portugal by operator, end 2013

Source: ANACOM presentation March 2013

It is clear from the picture that at this time, PT’s coverage of NGA was behind that of

ZON. The regulator ANACOM attributes some of the dynamics in NGA deployment to

the catch-up that was needed by PT to match cable deployment.

Although alternative operators’ FTTH is available only in limited areas (and Optimus has

since merged with ZON100), it is also clear that in the mostly densely populated regions,

end-users may have access to 3 or 4 NGA infrastructures. The increased levels of

infrastructure competition have resulted in a reduced focus on ex ante regulation for

NGA in Portugal in comparison with the tight rules that were imposed on PT prior to the

divestment of cable. As of March 2014, there was still no ex ante regulation of PT’s

100 One of the conditions of the merger proceeding was for Optimus to offer to divest its FTTH assets to

the remaining significant fixed entrant Vodafone.


FTTH network. Vodafone has also declared its intention to increase FTTH deployment

in Portugal, with plans to cover 1.5 mio. homes by mid-2015101.

Although it is clear that competitive dynamics in Portugal changed significantly following

the cable divestiture, and this may have influenced PT’s behavior, it is important to note

that this was not the only reason for the developments in infrastructure competition.

Since the start of cable deployment, cable had shared ducts with PT’s copper network,

and this early limited duct access regime was widened to other operators with some

success (see section 6.1.3.2 for details). It is likely that the effective SMP regulation of

PT ducts contributed to the roll-out of FTTH by alternative operators in Portugal.

A further issue specific to Portugal is the Government ownership at the time of the cable

spin-off of 500 golden shares in Portugal Telecom that provided extended voting rights

over strategic decisions102. The Portuguese Government revoked its golden share in

PT (along with similar shares in other utilities) in 2011103 following a 2010 EU court

ruling104 that such shares were illegal. However, the Government held such shares at

the time of the divestiture.

PT’s decision to divest its cable assets may have been commercially driven. The

divestiture allowed it to pay additional dividends to shareholders as a reward for

blocking the takeover. In practice the divestiture was approved by the vast majority of

shareholders.105 The separation of cable from copper assets was also already under

consideration as it had been cited in December 2006 by the Portuguese competition

authority as a condition for the merger with Sonaecom to go ahead.106 However, it

cannot be excluded that the influence of the Government via its golden shares may

directly or indirectly have influenced PT’s decision regarding the spin-off of cable, as

some media reports implied.107

101 Vodafone news release (http://www.vodafone.com/content/index/media/vodafone-group-

releases/2014/award-fiber-rollout.html ) 102 See FT article (http://www.ft.com/intl/cms/s/2/0a51e156-bd5e-11db-b5bd-

0000779e2340.html#axzz3B2XP5wdz ) 103 See Reuters report (http://www.reuters.com/article/2011/07/05/portugal-goldenshares-

idUSLDE76414L20110705 ) 104 http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:62008CJ0171 105 Bloomberg claims 90% of shareholders backed the divestiture of cable

(http://www.businessweek.com/news/2007-04-27/portugal-telecom-shareholders-approve-pt-multimedia-spinoff )

106 See http://www.concorrencia.pt/SiteCollectionDocuments/AdC/RelatorioPT2007.pdf 107 See for example http://www.ft.com/intl/cms/s/2/0a51e156-bd5e-11db-b5bd-

0000779e2340.html#axzz3B2XP5wdz , http://www.neurope.eu/article/sonaecom-may-have-sell-pt%E2%80%99s-copper-network , http://variety.com/2007/biz/news/takeover-bid-shakes-portugal-biz-1117960872/



In the Danish contest, divestiture of cable assets could create the following advantages:

• Divestiture of TDC’s cable assets would likely improve infrastructure

competition. It would create a new independent competitor in an important part

of Denmark (coverage of the TDC cable network is 50% of homes). While it

would not raise the number of infrastructures, it would raise the number of

competing infrastructures in many locations in Denmark. This would intensify

competition in terms of network roll-out, network upgrade and product innovation

and provide more choice to an important part of Danish customers. Notably,

TDC would have an immediate incentive to upgrade its copper network with

VDSL2 vectoring across the national territory (where viable) rather than focus

primarily on areas where there is no cable. An independent cable operator may

also create incentives for TDC to expand the geographical footprint of its fiber

network in cable areas.

• Ownership separation could allow deregulation of wholesale central access

(wholesale broadband access as it is called today) in Denmark. TDC may no

longer have individual SMP if cable is separated and regional markets are

defined to catch the higher degree of competition in these markets. The higher

density markets would be characterized by three infrastructure-based

competitors: Copper (TDC), cable (new operator separated from TDC,

respectively SE/Stofa), fiber (TDC, and SE or Waoo!). Whether the additional

infrastructure competition would also allow the deregulation of wholesale local

access (including VULA) is difficult to predict.

• The consequences of ownership separation for access-based competition would

depend on the amount of deregulation justified by the increased infrastructure

competition. If regulated access of wholesale local access was maintained,

notably VULA, there could be an improvement of access-based competition. As

TDC would have improved incentives to implement quicker vectoring upgrades

and/or fiber roll-out in cable areas, VULA-based competitors would be able to

benefit from improved access products.

Disadvantages of divestiture of cable assets would include the following:

• Divestiture of TDC’s cable assets would create substantial costs related to

defining the scope of the divested business activities, reorganising TDC, and

managing the sales process. Alternatively, the cable business could be

transformed into a public limited company and shares offered at the stock

market in form of an IPO (Initial Public Offering). The costs of an IPO are likely

to be even higher.

• There does not seem to be a legal basis to make divestiture a policy option.

Neither EU nor Danish law provides such basis. Divestiture could of cause be a

commitment imposed by Competition Authorities in a merger approval

procedure. At this point in time, such merger is difficult to envisage.

• It is also uncertain whether there is an incentive for voluntary divestiture. TDC’s

shareholders would only consider divestiture if this enhances the value of their


shares. In fact, it is not excluded that divesture may enhance shareholder value

if substantial deregulation can be expected. It is quite likely that, following

divestiture, at least in the urban areas, infrastructure-based competition could be

considered strong enough to deregulate at least wholesale broadband access

(in the future, wholesale central access). A less regulated environment would be

factored in when assessing a company’s value.

6.6 Comparison of options

Section 6 has outlined the advantages and disadvantages of options that could improve

competition in the Danish broadband sector. Table 12 provides a comparative view of

the options in terms of

• Whether implementation of the option can be mandated or depends on a

voluntary (i.e. commercial) decision of the operator(s);

• Whether, and to what extent, it likely increases infrastructure-based competition

(potentially allowing removal of SMP regulation);

• Whether, and to what extent, it likely increases access-based competition;

• Whether there are one-off implementation costs; and

• Whether there are recurring implementation costs.


Table 12: Comparative assessment of options to improve competition in the

Danish broadband market

No. Option Mandated

or voluntary?

Competition benefits Implementation costs

Increase of infrastructure-

based competition?

Increase of access- based

competition?

One-off implemen-

tation costs?

Recurring implemen-

tation costs?

1 Greater role for municipalities in fostering digital infrastructure readiness

Mandated √ - ↑ ↑

2 Symmetric FTTH terminating segment network sharing

Mandated √ - ↑↑ ↑↑

3 Access to fiber networks of utilities

Voluntary - √ (1) ↑ ↑

4 Functional separation of TDC

Voluntary - √√ ↑↑ ↑↑

5 Divestiture of cable assets of TDC

Voluntary √√√ √ (2) ↑↑↑ -

Notation:

Competition benefits: √: Low benefits, √√: Medium benefits; √√√: High benefits.

Implementation costs: ↑: Low costs; ↑↑: Medium costs; ↑↑↑; High costs. (1)

If demand for access to fiber utilities came predominantly from TDC, a positive effect on access-based competition would not materialize.

(2) If the increase of infrastructure-based competition led to the deregulation of wholesale access markets, access-based competition would decrease. In these circumstances, access-based competition would, however, become less important for overall effectiveness of competition and market performance.

Source: WIK

The results of the table can be summarised as follows:

Mandated versus voluntary:

Only two options can be mandated and therefore be regarded as genuine policy

options: The first option is giving a greater role to municipalities in fostering digital

infrastructure readiness. The second option is imposing symmetric FTTH terminating

segment network sharing.

The other options considered lack a legal foundation and therefore cannot be imposed

on a mandatory basis. They become relevant if they make commercial sense to the

relevant operators, respectively company shareholders. This applies in relation to


access to fiber networks, but also to functional separation (unless imposed through

SMP regulation, which was not considered) and divestiture of cable assets of TDC.

Promotion of infrastructure-based competition:

Divestiture of TDC’s cable assets clearly fares best, when it comes to promoting

infrastructure-based competition and dealing with the origin of much of the current

competition problems. FTTH terminating segment network sharing potentially could also

have an impact on infrastructure-based competition, it seems however that demand for

it may be limited to TDC. Giving municipalities a greater role has a relevant, though

limited, impact on infrastructure-based competition.

The other options - access to fiber networks of utilities and functional separation of TDC

- are unlikely to contribute to a relevant extent to infrastructure-based competition.

Promotion of access-based competition:

Functional separation fares best in terms of promoting access-based competition.

Access to fiber networks of utilities could potentially also provide a stimulus, but it

remains to be seen whether operators other than TDC would express an interest in it.

Arrangements between fiber utilities and TDC could be prohibited by the Danish

Competition Authority if they give rise to competition problems.

Divestiture of cable assets of TDC, however, may also a positive impact on access-

based competition as it may improve TDC’s incentives to upgrade its copper network

with vectoring or roll out FTTH in cable areas and thus improve access products for

competitors. In turn, if the creation of an independent cable operator lead to a significant

enough increase in infrastructure-based competition, access-based competition would

become less important for overall effectiveness of competition and market performance.

This would likely lead to deregulation of wholesale access markets.

The other options – greater role of municipalities and FTTH terminating segment

network sharing – do not to promote access-based competition. Their primary focus is

on strengthening infrastructure-based competition.

One-off implementation costs:

All options create one-off implementation costs. Such costs are highest for divestiture of

TDC’s cable assets given the necessary reorganisation of TDC and the sales process

or IPO (Initial Public Offering). The cost of implementing functional separation and

FTTH terminating segment network sharing is also significant. Costs are lowest in case

of a greater role of municipalities and access to utilities’ fiber networks.

Recurring implementation costs:

Divestiture of cable assets of TDC, once completed, has no recurring costs. All other

options create to a varying degree recurring implementation costs.

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